Went to the supermarket today and I noticed that there price of things compared to our usual retail market is cheaper, slightly cheaper, the same price but never above the price. This got my attention to asking, how do supermarkets make their money? How do they make sure they don’t run out of business because, compared to small retail stores that increase their prices slightly higher and yet still complain they don’t make enough money compared to supermarkets. Supermarkets spend a lot of money in maintenance, more staff, if the supermarket is in a country like Nigeria where light is a big issue, they spend more money on fueling and making sure they power the supermarket. If they sell at a lesser price compared to other small retail stores, how do they still be in business?
Other people will say they make money through margin trading, that means, they buy at a far lesser price from the producers and sell at a moderately low price to the public. While that might be true, that is not enough to keep a supermarket running for long. What keeps the supermarket running is a good margin and trading volume. If a supermarket keeps having a good margin but low trading volume, it’s just a matter of time before the supermarket will start running at loss.
But if there is a high trading volume, meaning that a lot of people are constantly coming to buy from the market, thereby increasing their chances to sell out and restock. If supermarkets are not selling out and restocking, they will run at lost because, if people don’t buy their goods, they will sell. These goods are mostly perishable products with expiry date, this means more trading volume needs to be made for profit.
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They rely on high volume. In the USA, grocery stores typically operate with a 1% margin. However, they sell so much every day that they are able to stay in business.