Selling a Grocery Store or Market

How a buyer reads the store

The first question is who shops there and why they come back. A neighborhood market might serve a specific community with products a chain does not carry. A corner grocery may live on convenience and the daily top-up trip. A larger independent might compete on produce and fresh meat. Buyers want to hear which of these the store is, because the answer decides what they will check next.

They will look at weekly sales over several years, the number of transactions, the average basket, and how all three have moved. A store with rising traffic and a growing basket is in a different position from one whose sales are rising only because prices went up. If a new chain store opened nearby or an old one closed, the numbers will show it, and a buyer will ask what happened.

Gross margin by department is the next stop. Produce, meat, deli, dairy, bakery, grocery, frozen and beer or wine each carry a different margin and a different risk. Fresh departments earn more and lose more, since waste is part of the cost. A buyer wants to see how the store tracks it, and whether the owner knows the shrink in each department. Shrink includes spoilage, theft, receiving errors and markdowns. A store that reports shrink carefully gives the buyer something to rely on, and a store that has never measured it hands the buyer a reason to guess low on earnings.

Fresh departments and the people who run them

In many markets the butcher, the produce manager and the baker are the reason people shop there. A buyer asks who they are, how long they have worked in the store, and whether they have relationships with the suppliers. A meat counter that depends on one skilled cutter has the same issue as any business that depends on one person. Our post on owner dependency is aimed at owners, though the same logic applies to a key department head.

Store managers and assistant managers matter in a store that is open long hours, six or seven days a week. If the owner works the register or stocks the dairy case several mornings, a buyer will treat that labor as a cost to be replaced, and the earnings will be adjusted. Payroll records, schedules and wage rates should be clean. Our post on add-backs describes what buyers accept and what they remove.

Staff turnover tells a story too. Cashiers and stockers come and go in most stores, but a buyer wants the department heads and managers to remain. When to tell employees is a decision worth planning with care.

Suppliers, pricing and the shelf

Most independent grocers buy through a wholesaler, a cooperative or a group of direct vendors who deliver bread, dairy, snacks, beer and soft drinks on their own routes. A buyer wants the supplier list, the payment terms, the volume rebates and any contracts with exclusivity. Wholesaler agreements often have terms that include minimum purchase levels, and some require consent when the store changes hands. Reading these before you list saves surprises.

Pricing discipline matters. Buyers compare shelf prices with the competition and ask how prices are set, how often they are updated and who does it. They will look at promotions, loyalty programs, coupon handling, and the share of sales that comes from specials. A store that has never raised prices when costs rose may be leaving money on the table, and a store that is already the most expensive in its area may be at a limit.

The point-of-sale system holds much of this information. Reports by item, by department, by hour and by cashier can show margin, shrink, voids and refunds. A buyer who gets good reports from the system trusts the store. A buyer who is handed a spreadsheet typed by the owner will want to see the source.

Cash, benefits programs and the books

Grocery stores take payment in several ways. Cash, cards, checks, and in many stores benefit program cards, which come with their own enrollment, rules and reporting. A store that accepts these programs often draws steady traffic, and buyers will ask how much of the revenue comes from them. Eligibility and transfer rules for such programs vary, and your attorney and accountant confirm what applies and how a new owner re-enrolls.

Lottery, money orders, bill payment and similar services bring traffic and small commissions. Alcohol and tobacco bring larger sales and licensing questions. Each license is issued to a specific owner and location, and what happens at a sale depends on state and local rules. Your attorney confirms which ones the buyer must apply for, and how long that takes. Plan for the timing, because a closing can wait on a license.

The books have to match the system. Deposits should tie to daily sales, and the sales tax filings should tie to both. Buyers and lenders notice the gap when an owner has been taking cash out of the till. Anything not on the books cannot be counted. Our guide to getting your financials ready walks through this, and what a quality of earnings report can do for a larger store is worth a look too.

The inventory count

Inventory is a large part of what a buyer takes over, and it is usually priced separately from the business itself. Many grocery deals include a physical count on the day of closing, done by an outside counting company or by both sides together, with the buyer paying cost for saleable goods. Spoiled, expired, damaged and slow-moving items are excluded. Frozen and refrigerated goods raise additional questions about temperature logs and equipment.

A store that keeps clean inventory, rotates stock and writes down stale items has less to argue about at closing. A buyer who finds out at the count that the stock is lower than expected may reduce the price or walk. Our post on working capital and holdbacks explains how that adjustment works.

Equipment, lease and what transfers

A grocery store is a collection of equipment that needs to run all night. Walk-in coolers and freezers, display cases, meat saws and grinders, scales, scanners, refrigeration compressors, ovens, produce misters, and shopping carts are the usual list. Buyers have the equipment inspected, particularly refrigeration, since a failed compressor is expensive. Maintenance logs and service contracts show a buyer the care the equipment has had.

The lease often decides whether the deal works. A grocery store needs parking, loading access, the right size and a trade area that has not shifted. Buyers and their lenders want enough term and renewal options to cover the loan, and a landlord's consent is typically needed. Our post on the lease as part of the deal describes what to expect. If you own the building, real estate attached to the business covers the options.

Health permits, food handling certifications, scale certifications and any local business registrations need to be checked with the right offices, and requirements vary by place. Your attorney confirms what transfers and what a buyer applies for on their own.

What sinks these sales

Common problems are easy to spot. Shrink is high and nobody tracks it. Sales on the books are lower than what the owner says. The lease is short. A new competitor opens before the sale closes. The wholesaler agreement does not transfer. Refrigeration fails during due diligence. A license takes longer than planned. The owner is the only person who knows the vendors.

Getting ready

Start tracking shrink by department. Clean up the point-of-sale reports. Make sure deposits tie to sales. Service the refrigeration and keep the paperwork. Review the wholesaler agreement and the lease. Train managers to run the store without you for a week or two. Write down the ordering routines.

We value a grocery store from its own records, prepare the materials a buyer and lender will expect, and keep your name out of the marketing until a buyer is serious. If you want to see how buyers read a store like yours, the page on selling a grocery store or market is a good place to start, and Business Advisors of America is glad to talk through where you stand.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.