It’s not hard to imagine why some people might think the grocery business is a great one to get into.
For one, it seems relatively resistant to change.
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Try as some e-commerce retailers might, they haven’t really been able to crack the code and switch everyone over to shopping online for groceries.
In fact, most of us still make the trek in-person to our supermarket.
Maybe it’s because we like to touch and feel the tomatoes to ensure we’re getting the best ones. Maybe it’s because we’re friends with the cashiers.
Or maybe it’s because we’re creatures of habit, and you can’t make us do everything virtually just yet (try as Mark Zuckerberg might).
Plus, every time you go into the grocery store, it seems to be teeming with business. That ever-present beep of the checkout line is the soundtrack of most supermarkets.
And the shelves are always being restocked.
That must mean business is good then, right?
The truth of the matter is that it’s a lot more complicated than that.
Kroger is shutting down two of its restaurants.
Image source: Jeremy Hogan/SOPA Images/LightRocket via Getty Images
Grocery stores are hard businesses to run
If you dig into the numbers, you’ll soon find that operating a grocery store is a finicky business.
Even the largest national grocery stores have notoriously razor-thin margins.
Most report profit margins of around one to three percent, and that’s when things are going well.
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Iconic ice cream chain unexpectedly closing locationsStruggling auto parts chain closing down all stores but oneAnother discount retailer closing over 1,000 storesIconic retail chain closing nearly 500 stores
This is because most items cannot be marked up substantially, and many of the popular staples are actually loss leaders. So grocery stores have to play a numbers game in order to turn a profit.
They’ll charge a few extra cents on products and in turn, must sell a lot of canned goods, frozen items, paper products, and other items to make money.
Plus, it takes a lot of money to run a grocery store.
They must restock their perishables on an almost-daily basis, which can be pricey and wasteful.
Plus, these shops (which are always those pesky, expensive brick-and-mortar stores) are huge, lofty facilities that must be kept perfectly temperature-controlled to preserve large stocks of food.
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This means costly utility bills, a lot of upkeep, and plenty of renovations to keep customers coming in for a pleasant shopping experience.
And speaking of customers, grocery stores must keep their prices as low as possible to retain their guests. Since most of us know what seems reasonable to pay for food, if we sense we’re getting ripped off, we’ll go elsewhere.
That means most grocery stores are involved in a race to the bottom in terms of prices.
Kroger shuttering restaurants
It’s easy to understand how easily a grocery store might over-extend itself, then.
It can be tempting, particularly when some stores are making successes out of other ventures.
Costco and Wegmans, for example, both run popular restaurant businesses.
Costco’s food court is one of the most popular in the nation; its $1.50 hot dog meal is legendary and some customers visit the store — or pay for an annual membership — just to get access to the in-store dining option.
Related: Walmart’s Sam’s Club gets something new Costco doesn’t have
And Wegmans has been expanding its restaurant options, too. It recently opened up its second Next Door sushi restaurant in a swanky district in downtown Manhattan.
But not everybody can do this.
Kroger (KR) is learning that lesson the hard way. It announced it will shutter two out of its three standalone restaurants near the end of April.
Those locations are:
Kitchen 1883: Union, KentuckyKitchen 1883: Anderson Township, Ohio
It will keep its Cincinnati, Ohio location open next to its headquarters and continue to offer catering services.
Kroger did not list a reason for the closures, calling it a “difficult decision.”
“We will miss you more than words can express,” Kitchen 1883 wrote in a Facebook post.
The last day of operation will be April 24, 2025.
