Costs are rising. Tariffs and supply chain disruptions are rampant. Customers' priorities surrounding quality and price are changing.
But it’s not all bad news. All of this uncertainty creates profitable opportunities, especially for local grocery stores and small specialty markets.
Corporate grocery stores are limited in the changes they can make and how quickly they can react — a problem small local markets don’t have.
There’s a growing group of customers willing to pay more for unique, fresh, and local food. By making small tweaks to your stocking and marketing strategy, you can capture these customers’ attention and boost your bottom line.
Experts are noticing that the U.S. economy has turned K-shaped. But what does that mean?
Put simply, people who feel financial pressure are retreating to online shopping or discount brands (Walmart, Dollar General, etc.) to find the best price. At the same time, people who have money to spend are more willing to buy premium, high-quality goods. The middle ground is disappearing.
A K-shaped economy is already having major impacts on grocery industry trends. Most notably, specialty grocers are growing faster than discount retailers.
Local markets and family-owned grocery stores can’t compete on price, at least not for staples and low-margin items. However, they are thriving when it comes to selling high-quality and specialty products.
You probably can’t compete with a Kroger or Target on selling name-brand snacks — but there are ample chances for a specialty market to compete with Whole Foods or other big-chain premium grocery stores on fresh, unique, and locally-sourced goods.
Long story short: Faced with economic pressure, it’s a bad time to play it safe. Middle-of-the-road strategies aren’t enough to compete with big chains. It’s time to double down on what makes your store unique.
Related Read: Tariffs and Grocery Store Owners: How To Raise Prices Without Losing Customers
It doesn’t matter what your niche is. International grocery stores, specialty grocery stores, natural grocers, delis and delicatessens, butcher shops, and fishmongers — they all offer unique items customers can’t find at the big-chain grocery store down the street.
Instead of playing a losing game with standard products and impersonal experiences, it’s time for markets to lean into what makes them special.
But going “premium” isn’t the same thing as raising your prices and hoping for the best. Here are some tips for carving out a premium niche without alienating your customers.
Many grocery stores assume that a wider selection means more sales. These days, the opposite may be true. In most cases, if a customer can find a generic or name-brand item at another store for less money, they will.
And while a big-chain grocery store can afford to lose margins on standard items, small food markets can’t. So, why waste shelf space on items where you can’t compete?
Cut down on underperforming SKUs so you can focus more on selling unique, high-margin items.
Carrying a large number of standard SKUs can have several negative impacts on your bottom line:
This doesn’t mean you should eliminate all of your name-brand items. Instead, use the reports on your point of sale (POS) system to dive into your profit margins by department. If you identify any middling or slow-moving generic SKUs, phase them out (especially if they’re not frequently bought together with other high-margin items).
At the same time, use your reports to identify unique, local, or homemade products that have consistently high sales volume and profit margins. These are the products you should dedicate the most shelf space to.
Cutting down on your SKU bloat also helps you keep prices down overall. The fewer items you carry, the less you have to sell to turn a profit. It also gives you the freedom to stock your shelves with popular items people can’t find anywhere else.
Related Read: 6 Ways To Use Grocery Store Data Analytics
A shocking number of food markets we talk to don’t currently have a customer loyalty program. Some aren’t sure how a loyalty program will work with their business model. Others think it’s too complicated to set up and manage.
Not only is a customer loyalty program easy to implement, it can also have a massive impact on your ability to retain customers and market directly to them.
Most modern POS systems have built-in options to manage a digital loyalty program directly from your registers. In other words, customers don’t need to carry a physical card. They can simply enter their name and phone number to sign up at checkout.
Most loyalty programs can be run directly from your POS system.
Point rewards can be set up on your POS backend, along with member-exclusive discounts. This encourages repeat business and helps boost sales. It also provides a more modern and exclusive customer experience.
Better yet, once customers sign up in your system, you can track their purchase history. You can learn a lot by looking at customer history, like:
You can also announce any new product arrivals and sales directly to customers, making it a useful tool for store marketing, too.
Fast food isn’t the same value it used to be, with the average meal costing $12 per person. People are looking for cheaper (and fresher) alternatives.
Specialty grocery stores and food markets don’t just compete with other grocery stores. Food markets with fresh prepared food and ready-to-eat meal options have a shot at competing directly with restaurants for business.
It also opens up new business models for small markets. Imagine a bustling seating area where people can eat freshly prepared sandwiches, burritos, and salads at lunch and then more traditional grocery shoppers in the evenings.
We’re seeing an increasing number of food markets find success with prepared meals that can be made in house at low cost. They’re often fresher and less expensive than fast food, giving stores an edge with both quality and price-conscious customers.
If you have the facilities to make fresh food, market it and give it extra space in your store layout.
One of the key reasons people shop at small food markets is for access to local produce and foods they can’t find at a big-chain grocery store.
As you pare down your name-brand SKUs, work with your local suppliers to find unique products to fill your shelves. If you have a strong history of selling local products, use that sales data to convince suppliers to provide a small sample of new brands and products to try out.
Working with local suppliers also minimizes your risk of losses from supply chain disruption or tariffs on foreign goods. As a bonus, many customers will pay more to support local businesses and for high-quality food.
Of course, this strategy isn’t a good fit for international markets and stores that thrive on imported goods. But if you do sell homemade ready-to-eat items, try to source more ingredients locally. This helps you cut costs and market your food as a premium option made with local ingredients.
Whether you’re adjusting your product mix or diving into hot meals, keep a close eye on what’s working and what’s not.
And don’t just trust your gut. Use the reporting and analytics tools on your POS system to get an honest, bird’s eye view of store performance. Take some time once per week to review your sales and profit margins by department.
If you introduce new products, look at key performance indicators (KPIs) like inventory turnover and profit margins to understand which products are worth stocking more of and which aren’t resonating with customers.
Last, food markets are highly seasonal businesses. Sales reports help you spot important seasonal demand shifts, which helps you with merchandise planning.
Remember: Positioning yourself as a premium grocer isn’t the same as being the most expensive option in town.
Many small food markets already have access to unique and high-quality products — it’s all about emphasizing those products (and cutting out unnecessary SKUs) to bring in more customers.
However, to make effective changes that won’t alienate your existing customers, you need robust inventory management, visibility into your costs and profits, and convenient ways to stay connected with your customers.
Download our free guide to the top products sold in grocery stores for expert tips on creating a winning product mix on your shelves.