The grocer’s industry is associated with flat sales margins due to increased competition. Higher expenses have effectively minimized profit margins to razor-thin levels, particularly amongst smaller independent stores. The minimal profitability amongst smaller and medium-sized stores spurred a recent wave of merger and acquisition activity. Openings of store chains and discount food retailers, including the Wal-Mart super centers and Target’s food products expansions, have applied further pricing pressure.

According to the Encyclopedia of American Industries, approximately 15% of market share is attributed to independent stores. Markets that cater to ethnic food customers are gaining in terms of market share, as are warehouse-style stores that carry food items (namely Costco, Price Club). Gourmet shops are often able to justify higher prices for high quality merchandise, although sales for these shops tend to be more cyclical.

Large stores are better able to negotiate pricing terms from wholesalers, and may require exclusive distribution contracts with food manufacturers. Firms that are not vertically integrated may face challenges from supply interruptions. Generally speaking, steady patronage coupled with a favorable lease and in-place liquor licenses make for a marketable grocery business.