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Grocery stores markup

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I've never walked into L.A.'s downtown wholesale market, but somehow I have the feeling I 'll find prices that are way less than 50% of grocery stores' retail. Any thoughts / experiences?

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  1. I've always read that grocery store mark-ups are typically found between 5 and 20%. Lower on staples, higher on luxury items.

    13 Replies
    1. re: Jacquilynne

      Over thirty-some years of grocery buying, I've noticed that mass-market grocery chains such as Safeway and Kroger run very fine margins with high-volume items and then markup the heck out of "fancy" stuff, often pricing it well above what the more upscale stores charge. In Nashville, for instance, I could buy most of my everyday items at Kroger, and then go down the street to the late lamented Green Hills Market and get my Medaglia d'Oro espresso coffee for $2 per pound LESS than what Kroger was charging! Here in SoCal I'm seeing the same deal with Ralphs and Vons versus Gelson's and Bristol Farms, although the presence of the REALLY CHEAP Latino and Asian markets here kinda skews the results...in a most delightful way, I might add.

      1. re: Will Owen

        I've found that to be true on some items where they are much more expensive at my regular grocery store than at Whole Foods. I think economies of scale are at work here, as well. Whole Foods probably sells a lot more of a given luxury item than the local Save-a-Lot. That gives Whole Foods more buying power on those luxury items, even though Save-A-Lot massively dwarves them in overall buying power.

        1. re: Jacquilynne

          That's true (volume discounts) but my local food coop sells at 22% above wholesale, and Whole Foods is waaaay more expensive so I think they must be taking a pretty high percentage.

          1. re: pitu

            You are neglecting a couple of key factors. One, distribution costs, and two, Whole Foods is not buying form the same sources as your food coop--there is no single magical "wholesale" price. Just as reatailers set their own prices,so do wholesalers, and commodity food prices (meats, fruits/veg, juice, milk) fluctuate wildly. Not to defend WF, as I think they are unjustly expensive, and I completely stopped shopping there due to their prices. I am just saying you may be comparing apples to oranges : )

            1. re: Two Forks

              I work in the perishable commodity procurement industry for most major retailers and food service suppliers in North America, and I like shopping at my Whole Foods. Yes they are expensive because they aren't stiffing the supplier as bad as the other giant retailers. The poor farmer is lucky if he makes a one percent profit after the retailers have squeezed them for everything they have.

              1. re: Two Forks

                Actually, my food coop IS supplied by some of the same distributors as Whole Foods, and other grocery chains in my area.

                It depends on the items.
                For example, we have relationships with local farmers -- they might not supply anyone else.
                One farmers's apple harvest, or four little free-range organic lambs...
                but then there's produce from California or Mexico, same wholesaler as WH. We also buy beer or water or chips or boca burgers or sponges or Burt's Bees or a million other different dry goods, and it's all coming from the same place. I know the bigger my coop is, the better deals we get from the distributors.

                Can you tell I go to a member-operated coop? I know waaay more about the grocery biz now than I did before...the whole world of discounters is also pretty interesting - that "east village cheese, how DO they do it?!" article recently linked here was fascinating.

                WF should certainly be able to make a better deal than my relatively miniscule cooperative since they are waaaaay bigger and national, so I gotta figure it's all about their profit margin/advertising/whatever. I'm sure their economies of scale are not being passed on to their customers or their employees!

                Link: http://www.psfc.blogspot.com/

                1. re: pitu

                  Yes, WF is a rip-off, I believe I stated that too. That said, they are a for-profit business, not a coop or a charity, and in general their service is excellent. Not sure how your coop works, and what the tax implications are, but these are also considerations, such as do you have to pay tax on your inventory as WF does? They carry many very slow moving items, and it is actually quite expensive to carry stock that does not turn. I agree though, their produce especially is unjustifiably expensive.

                  1. re: Two Forks

                    I got nothing against Whole Foods, and I appreciate them and Trader Joe's and Harris Teeter and other retailers for providing high end groceries to the rest of America, or to me with a serious case of sticker shock when I visit people elsewhere. I just love my coop, and I think it's a model people should know about.

                    We aren't a non-profit -- it's a grocery store. There's a genius buyer who follows the trends so brilliantly as to nearly turn the whole store each week. It's a stunning feat of planning, that attracts a pretty hardcore self-selected foodie crowd.

                    And there's no weird grocery store smell . . .
                    LOL

                    Link: http://www.psfc.blogspot.com/

                    1. re: pitu

                      Thank you so much for this link!! it's very educational. You are very lucky to have this coop, and you must be proud to participate.
                      thanks,
                      tj

            2. re: Jacquilynne

              What springs immediately to mind is salt cod, the kind that comes in a one-pound box. Almost $20 at Vons, around $16 at Fish King in Glendale, around $12 at Whole Foods!

              1. re: Will Owen

                I paid $10.99 at my little independent butcher shop for a 1lb. box of salt cod on Thursday. Wooden box, product of Canada. There is some brandade in my future.

          2. re: Jacquilynne

            Are we talking what brings you into the store or what you leave with? The 'sale' item that gets you in the door may lose money. What you also purchase makes the profit of the sale. $.57 two liter cola anyone?

            1. re: grizlbr

              That conventional wisdom lacks a good deal of accuracy. Most often if something goes on sale below the usual cost paid by the retailer, it has been offered to the retailer at a special price, or with coop advertising dollars to offset the "loss". As for "profit of the sale", I assume you are referring to mark-up, not profit, as profit can only be measured after a full accounting, and not on a per-sale basis.

          3. When you say "wholesale market", do you mean a farmer's market, or Price Club? I used to hear that the mark up in chain grocery stores was more like 1% and they depend on volume. I was a member of BJs for the last year, and the prices were OK but not better than something on sale at the regular store. Plus every time I went there it would be at least $100 for about 10 items. Didn't renew this year.

            9 Replies
            1. re: coll

              Totally untrue about the 1% markup at grocery chains. More likely they average about 1% profit, which take into account labor costs, advertising, rent, etc.

              1. re: Two Forks

                Yeah, that sounds more like it.

                1. re: coll

                  Yes, people often confuse margin with markup. Very different.

              2. re: coll

                Sorry, what I mean is Wholesale Produce Market, i.e., the place where grocers do their buying.

                1. re: RicRios

                  It would probably be cheaper most of the time, but also you'd have to buy cases rather than just a few pounds. So if you need big quantities (or have someone to share) it could be less expensive. Although sometimes groceries have bid/contract prices worked out far in advance, and sell the stuff in their store for crazy low prices, lower than wholesale. There are websites you could check to see the going price in general at any particular time.

                  1. re: coll

                    "There are websites you could check to see the going price in general at any particular time."

                    Any specific URLs?

                    TIA!

                    1. re: RicRios

                      Here are a couple of good ones.
                      Below URL is National Restaurant Association list, this is an old sample as you first have to pay and then they email it to you on a regular basis. But just to give you an idea of what it's like. Easy to read as it's aimed at restaurant owners and chefs.
                      A free one is the USDA Commodity Report, it's www.ams.usda.gov, and is great because you can pick which market you're in, but harder to read as it's aimed at wholesale buyers who do this all day long for a living.

                      Link: http://www.weeklycommodityreport.com/...

                      1. re: coll

                        coll: fantastic help, you made my day.
                        Thanks a lot!

                2. re: coll

                  I think that 1% figure, which I've also seen, must be the net profit. There's no way they could survive on a 1% markup.

                3. Most Grocery stores work on around a 30% profit margin on their selling cost. This is a target margin
                  on the everyday shelf price. Different departments, produce, frozen, meat, require a bit more profit margin due to shrink(loss of product)or cost to shelf.
                  It costs less to sell a can of peas then it does to sell a carton of frozen peas.
                  Most retailers work on a high/low marketing strategy.
                  The everyday shelf cost may be at a 35% profit margin, but when they put these items on sale they may reduce their profit margin to 15% or lower depending on the item. Certain items can be sold at cost or even at a loss to draw traffic into the store.
                  Hence they are referred to a "loss leaders" .People who purchase just the sale items are referred to as "cherry pickers".
                  Many other retailers operate a EDLP(Every Day Low Price) strategy. The everyday shelf price is usually constant, around a 25% profit margin..but the item will very seldom be at a reduced price.
                  Co-ops generally work at a cost plus price. They just add a percentage(markup) to whatever they may have paid for the product.