Grocery store business Model
Generally, a convenience store or grocery store is a small retail business that stocks a range of everyday items such as coffee, groceries, snack foods, confectionery, soft drinks, tobacco products, over-the-counter drugs, toiletries, newspapers, and magazines.
Grocery stores are popularly called retail stores or convenience stores. Convenience stores make money by buying goods and selling those goods to customers.
Typically, convenience stores sell things such as snacks, soft drinks, car accessories, lottery tickets, tobacco, sometimes alcohol.
Your profit represents the amount of money you have taken in after you have subtracted how much you paid for these goods as well as any operational expenses accrued throughout the month.
Cost of goods sold for a Grocery store
Cost of goods sold refers to direct cost attributable to the production of the goods sold in a company. Simply putting together, it refers to the cost of all the products a grocery store purchases and sells in a given time period.
It is basically the direct materials, direct labor, and direct expenses involved in reselling the products. These are easily traceable costs and can be easily identifiable from the products.
The other costs that cannot be easily traceable and cannot be linked to the product are not associated with being the cost of goods sold.
The COGS for grocery stores remain nearly same unlike other business structures where it changes over time, and the business can witness completely different number when comparing your COGS for one shift to your COGS for an entire year.
Various aspects relating to grocery stores shall be analyzed over time by the business owner as the Cost of inventory changes regularly in the grocery store.
How to Calculate the Cost of Goods Sold for a Grocery store?
The cost of goods sold formula is as follows:
Beginning Inventory + Purchased Inventory – Ending Inventory = Cost of Goods Sold (COGS)
Taking an example. The grocery store of Adams Inc based downtown had $9,000 of opening inventory at the start of the month, including food, drinks, chips, and other materials basically anything and everything it takes to sell to retailers.
Throughout the reporting period, the business ordered $24,000 of additional inventory and ended the month with $6,000 worth of inventory.
Beginning Inventory: $9,000
Purchased Inventory: $24,000
Ending Inventory: $6,000
Then, plugging those numbers into the grocery store, cost of goods sold equation, we get this:
Cost of Goods Sold = Beginning Inventory + Purchased Inventory – Ending Inventory
Cost of Goods Sold = $9,000 + $24,000 – $6,000
Cost of Goods Sold = $27,000
In this simple example, cost of goods sold comes at $ 27,000.
Generally, it is observed in the grocery stores, that cost of goods sold shall be limited up to 80-85% of sales at most. This is because of the reason that grocery stores are pure retailers of all the products that large FMCG companies produce and wants to sell.