Today (June 6), CNBC published an article titled “What’s Behind the Rush Into the Low-Margin Grocery Business.” The article discusses various issues regarding competition and profitability in the grocery business.
Notable excerpts include:
Americans spend more than $565 billion dollars a year on groceries. After all, everybody eats, everyday…and more than once.
Despite the high revenue, the profit margins traditionally have been low in this business, but that hasn’t stopped retail giants Amazon.com and Wal-Mart Stores from escalating the national food fight.
That said, grocery, online or off-line, remains a low-margin business. “Grocery is among the thinnest margins out there in retail. The average grocer probably gets a 2-, 2.5-, to 3-percent type operating margin. That’s a very slim margin, and that’s before interest and taxes,” Telsey Advisory’s Feldman said.
That doesn’t mean it’s a turn-off for the online behemoth, Feldman said. “Amazon’s history has been all about capturing market share and going as low as they can possibly go on price, sometimes even taking losses from what we can tell, if that’s the case, I don’t see why grocery would be any different, he said.”
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