The Cost Of Opening a Grocery Franchise in India

When it comes to opening a grocery store franchise, especially in india , it can be a very appealing business opportunity for many young as well as old entrepreneurs due to the massive growth of retail, consumer preferences and the expansion in the budget of the middle class. 

Grocery retail is a very expanded sector, with increasing demand of quality, convenience, and variety in products.

However it is not easy to open a grocery franchise , it involves investment, strategic planning and a deep understanding of market dynamics. 

Grocery stores in India can lead to huge profits if opened in an high traffic area or Posh areas with huge public and residential areas where people live and the need for grocery products is never ending, whereas stores in areas with low public and less traffic can also lead to losses. 

In this study we will study about all the cost components involved while opening a grocery franchise in india, categories such as grocery franchise fees, real estate, staffing and operational expenses. 

1. Understanding Franchise Model

In order to understand the cost dynamics, you must know about the grocery franchise model and understand the structure of a grocery franchise.

A franchise allows the entrepreneur to open a store with their brand and business model in order to make profits and pay royalties as well the grocery franchise fee to the franchisor.

Generally the intellectual property is owned by the franchisor whereas the operational guidelines and the marketing strategies are told by the brand. 

The franchisee always gets benefited by the brand’s reputation, customer base, proven systems and supplier relationships but must align with the brand’s standard. 

Some of the common grocery franchise in india are brands like Reliance Fresh, D-Mart, Metro. The cost of opening each on them depends on the brand and the area as well as the franchise package. 

2. Factors affecting the Cost

The cost of opening a grocery franchise in india can vary depending on various factors such as 

A. Brand Type

Different brands have different fee structure, some brands may have higher fees due to high brand value, they charge high because they offer premium brand recognition, well established supply chain and marketing support. 

B. Size

The size of the store plays a huge role and impacts the cost.

Size of a grocery store can be anywhere between 600-6000 square feet, and the cost depending on the size can also vary depending on the store is supermarket, hyper market or a small dairy in a neighbourhood. 

C. Location

The cost always differs on the basis of the location depending on it is in urban area or rural area.

Prime and Posh locations such as Chandigarh, Delhi, Mumbai, Bangalore, Chennai will occur high rental and operational cost compared to smaller towns such as Jind, Kaithal etc. 

D. Market Demand

The demand for all the groceries will influence the cost of inventory management in your store. It has to be included because it is a major operational expense.

High demand areas such as posh residential localities, high street areas may require higher initial investment. 

Also read: Top Cost-Management Strategies for Grocery Store Franchise

3. Initial Franchise Fees

The initial franchise fees is the fees that you have to pay upfront to the franchisor in order to secure rights to operate a grocery franchise        

This fees can range anywhere between 5 lakh to 50 lakh or maybe even more in larger investment models, generally well established brands tend to charge more money due to their brand reputation and operational support. 

A. Franchise Fees

This is the fees charged by the franchisor to give rights and operational assistance to work under their brand. This could be anywhere between 5 lakh to 50lakh depending upon the size of the store. 

B. Security Deposit

Some franchises also consider security deposits nowadays in order to cover potential losses. This can also range between 2 lakh to 5 lakh. 

4. Staffing Cost

A grocery franchise requires a lot of staff in order to maintain cleanliness and manage daily operations. This includes a lot of people such as

1. Store Manager

Responsible for checking all the operations of the store including staffing, customer satisfaction and financials. Salaries of such an employee can vary from ₹20,000 to ₹50,000 per month, depending upon the location and the experience of the employee.

2. Sales Staff

You will need a proper team of sales staff and their salary can range between ₹10,000-₹20,000 depending upon their experience and the location of the store.

3. Support Staff

staff is very necessary for inventory management, housekeeping and stocking. Their salaries can range anywhere between ₹10,000 – ₹16,000. 

5. Store Setup Cost

Once we are done with all the measures related to signing the agreement our next major cost is to set up the store.

Set up of the store involves various components such as space, inventory, equipment, and interior design. 

A. Premises Rent

Rental costs totally depend upon the location and the area where the supermarket or the store is being opened in.

Rental in tire one cities can depend from ₹50,000 to 5,00,000 rupees depending upon the area.

The area required is at least 600 to 6000  square feet.

If we talk about tier-2 and tier-3 cities this could be much lower and can also be ₹15,000-₹20,000.

B. Renovation

The cost of setting up the store and renovating it.

According to the grocery franchise demand can vary from anywhere between five lakh rupees to 30,00,000 rupees also depending on the location and the size layout.

this includes all the interior design, shelves, flooring, lighting, air conditioning, and signage.

Nowadays, the brand provides the design template, but the franchisee has to bear the cost of the labour and the material required. 

C. Shelving

Shelving systems to display, all the groceries can be really important because whatever gets seen get sold.

It is also very important to store all the groceries and can add a significant cost.

The cost of shelving can vary from INR 2,00,000 to 10,00,000 depending on Store size and layout. 

D. Counters

you will always require counter for the billing area which can cost you around ₹40,000 to ₹2,00,000. POS systems can also be costly and can range from ₹20,000 to ₹1,00,000. 

E. Refrigerators

For perishable goods, frozen foods, dairy products, Fresh produce and fruit you will require refrigerators which can hold a significant cost ranging anywhere between ₹2,00,000 to ₹10,00,000 again, depending on the scale and size layout. 

Inventory

The cost of stocking up inventory add a lot to the total cost for a grocery store can arrange anywhere between ₹5,00,000 to ₹50,00,000 again depending upon the location, variety of products and customer requirement.

This includes all the necessity items such as grains, spices, packaged food, cleaning products, snacks, beverages, dairy products, and fresh produce. 

Franchisees typically sourced all the products from the franchisor’s supply chain, although the exact product may vary depending upon the location. 

6. Franchise Fees and Royalties 

Generally, all the grocery franchise have to pay royalty fees to the franchisor or the brand due to their brand value and this phase is usually a few percentage of the stores monthly sale.

This royalty fee can range anywhere between 4% to 10% again depending on the brand preferences and you may have to contribute for the marketing expenses which can range anywhere between 1.5% to 3% of your monthly revenue.

For example, if your stores, monthly sale is ₹20,00,000, then your royalty can range from anywhere between ₹80,000 to ₹2,00,000 and similarly your marketing expense can range between ₹30,000-₹60,000. 

7. Working Capital 

In a grocery store business, you will always need working capital for day-to-day operations which include all the activities such as utilities, insurance, cleaning, inventory, and all the other operational costs. 

A. Utilities

Electricity bills, water expenses and other utilities can arrange anywhere between ₹10,000 to ₹1,00,000 per month depending upon the location and the area. 

B. Insurance

Insurance premiums for coverage against property, inventory and employee liability can cost anywhere between ₹ 15,000 – ₹60,000 annually. 

C. Miscellaneous Cost

This includes fees for all the signage, promotional material marketing material. Transportation, packaging, et cetera, and it can add up to ₹70,000 to ₹3,00,000. 

8. Break Even

Break in any business is very efficient and in a grocery store, it can depend on several factors including size of the store, variety of the store, location, inventory, customer traffic.

Generally, if we talk about a grocery store, it can easily break even between 1 to 2 years, although it can vary depending upon the location.

Whereas if we talk about running grocery franchise in a Porsche area, it can also generate profits in initial times while you are very less popular grocery franchise will take time to establish their name and may break even between 2 to 3 years.

Stores in low traffic areas generally take longer time to reach profitability as compared to stores in high traffic areas. 

If we talk about the profit margins in a grocery store, they are generally low and they can vary anywhere between 4% to 15% of the total sales whereas if we talk about a store that generates a very high amount of sales can also generate high profits due to high customer base. 

9. Marketing and Promotion 

Marketing and promotion is very crucial if you want to build huge customer traffic and attract customers towards your shop to buy products.

Grocery stores generally organise campaigns and offer huge discounts to their loyal customers and franchisees often carry out local promotions in order to attract more customers. 

A. Marketing Fees

Franchisees may be required to pay the marketing fees for the promotion of the brand, which can arrange anywhere between ₹10,000 to ₹50,000 per month, depending upon the size of the store. 

B. Promotions and Discounting

Stores generally offer discounts on several products and also introduce new schemes, which can be expensive for the store, but very necessary to attract loyal customers grocery store franchise may have to keep an additional budget out for these expenses and it can be around ₹20,000 to ₹2,00,000 per month.

Check out this: Grocery Franchise in India: A Comprehensive Overview

Conclusion

This was all about opening a grocery store franchise in India. It can be very appealing and attractive, but it is not as easy as it seems because you have to plan strategically and also think about the investment required.

There were various factors and we have covered almost all in our detailed study.

We have covered all the major points and it will make easier for you to understand how to open a grocery franchise in India, you can prepare your budget and start doing research regarding which ever type of supermarket you want to open. 

The initial investment can also vary between ₹5,00,000 to ₹1,00,00,000, depending upon the location and the size of the grocery store also, remember that the franchisees will always charge for operational assistance, royalties, utilities, staffing, inventory, and marketing. 

With the right location, branding, marketing and market research there is no one who can stop a grocery franchise in achieving success because loyal customers always leads to profitability and success in long-term.

Franchise model nowadays provides assistance in each and every manner, but still you should conduct your own research and find which brand is best for you.

Opening a grocery store without market research, financial planning, and strategic planning can lead to huge losses.

A grocery franchise can only be successful if it is run with the right Motto, operational efficiency and the right strategy.

A grocery franchise business can be really successful and sustainable in India’s market because the need for grocery products is never ending and the Indian retail sector is growing day by day.