As of today, according to data collected by Dun and Bradstreet Company, there are approximately 5,500 active grocery stores and 1,700 active mini-markets in Israel. The industry’s extent of activity is valued at about 8.5 billion NIS.
A household’s monthly food expenses (including fruits and vegetables) in 2003 averaged 1,700 NIS.
The retail food market is a competitive market, and includes both large chains and small independent stores: grocery stores, mini-markets, and outdoor market stands. Size constitutes an advantage for large stores, as it allows for greater marketing and competitive abilities. Notwithstanding, small businesses have relative advantages as well, such as easy access, proximity to residency areas, and flexibility.
Customers: Defining the Target Market and its Size, Market segmenting
Potential clientele for any given store stems from the population residing in the store’s vicinity. Many customers take advantage of their local grocery store’s high accessibility in order to care for their immediate shopping needs, yet set off on weekly or bi-weekly shopping trips to large chain stores.
Customers can be segmented mainly according to location and financial situation.
Competitors in the food marketing industry can be grouped into a number of main categories:
- Grocery stores and Mini-markets- direct competition lies in the geographical vicinity.
- Chain stores- according to estimation, approximately 50% of food sales take place at these chains. The size advantage supplies these chains with a number of salient advantages over independently owned grocery stores.
- Private chains- some of these chains erected from stores or supermarket previously under private ownership.
- Outdoor markets.
- Specialized businesses- butcheries, greengrocers, cleaning supply stores, and bakeries.
Many vendors are active in the industry, varied among the range of products offered for sale at grocery stores and mini-markets. Many vendors fund exterior signing, accessories, and stands for their products. Drink and ice cream vendors usually supply refrigerators for their products.
Main marketing methods include building a repository of regular customers, displaying salient external signs, advertisement, availability of phone or fax orders and delivery service, and store arrangement: prominence of products and correct usage of shelf and cash register areas.
Factors Affecting Success:
The industry is at a very high-risk level. As raw profit in the industry is very low and dictated by vendors, and competition is high, the only way to succeed is by keeping a low level of operational and funding expenses, according to the extent of operation.
Main barriers are financial- cost of establishment, purchase of initial inventory, and operating capital for business operation. An additional barrier is a business license.
The investment varies according to store size, location, required equipment, extent of initial inventory, etc. thus it is important to prepare an investment plan that addresses these aspects before establishing a business.
According to estimations, a neighborhood grocery store will require an initial investment of 50-70 thousand NIS for site construction, remodeling and furnishing, and approximately 100-150 thousand in inventory (some inventory may be supplied at credit conditions).
The investment for a large mini-market could be double this estimation.
Industry revenue and profitability
Revenue of the store is affected by a large number of factors, including the inventory and array of products, location and appearance of the store, competitors in the immediate and far vicinity.
Percentage of raw profit in the industry is 16-22%. Businesses selling mainly basic products will tend to the lower range, and businesses sellling specialized products will have a tendency to the higher range.
Typical Terms of Payment
- Sales to occasional customers or customers paying at each transaction is by cash, check, or credit cards.
- Some of the regular customers conduct their purchases throughout the month by credit, and pay the accruing bill at the end of the month.
Merchandise vendors usually offer a credit of EOM+30 to EOM+ 90, according to the type of merchandise, sales level, and vendors’ perception of the store owner’s credibility.
Risk level in the branch is very high. According to data collected by Dun and Bradstreet Company, approximately 44% of grocery stores and mini-markets are in danger of closing.
Licenses and Certifications:
A business license is required from local authorities. In order to qualify for such a license, the store must be licensed by the Ministry of Health as well.
Business insurance (for content and inventory), third party insurance, employer’s liability insurance, insurance in case of a food poisoning, mechanical breakage, and spoiled merchandise, and loss of income insurance. In addition to the above, an insurance agent should be consulted as in regards to the need for additional insurance.
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