They say high-volume, low-margin sales are dangerous in reselling, but what about supermarkets, the quintessential example of this model?

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In the world of reselling, the term 'profit margin' is often used, but what kind of profit margin are you actually aiming for when you source products?

Also, it is often said that high-volume, low-margin sales are dangerous, but do you actually know what constitutes a 'low margin'?

Supermarkets that sell food are the quintessential example of high-volume, low-margin sales, but do you know what their actual gross profit margin is?

In fact, if you don't understand this well, you will end up failing miserably in reselling.

Because you won't have enough to pay your taxes.

When people talk about low margins in reselling, they probably imagine something like 5% or 10%.

However, that is actually a mistake.

5% isn't just a super low margin; it's even less than the consumption tax, isn't it?

For example, for a product with a
selling price of 1,100 yen
and a
purchase price of 550 yen,

the
selling price of 1,100 yen includes 100 yen in consumption tax
and the purchase price of 550 yen includes 50 yen in consumption tax, so

you need to pay the 50 yen difference to the government.

In the case of the selling price above, if the Amazon size is standard 1, for example, the profit margin would be about 12% and the profit amount would be 135 yen, so you would have enough to cover the consumption tax payment.

Now, what happens if you drop the price significantly and sell it for 940 yen?

The profit margin becomes about 6%, and the profit amount becomes 55 yen.

The
selling price of 940 yen includes 94 yen in consumption tax
and the purchase price of 550 yen includes 50 yen in consumption tax, so

you need to pay the 44 yen difference, but since the profit is only 55 yen, it's going to be quite tight, isn't it?

Of course, you'll be able to make the payment, but that's not the only thing you have to pay for, is it?

Besides consumption tax, there is also income tax, and various fixed costs you pay for business purposes, such as smartphone bills.

The consumption tax paid on those can be deducted from your tax liability on purchases, but the higher your fixed costs are, the more profit you need to make. Otherwise, when the month for tax payments finally arrives, you might find that you actually don't have enough.

In fact, many people fall into this trap.

What is the reality for supermarkets?

So, what is the reality for supermarkets, the prime examples of low-margin, high-volume sales?

You might imagine that many of them operate on low margins of about 5% to 10%, but that is actually a mistake.

I saw an article about this.

According to this article, they have an average profit margin of over 20%.

When I actually asked an AI about the profit margin of the supermarket chain Summit, it said it was 28.5% for the second quarter of the fiscal year ending March 2023, so the figure of over 20% on average does not seem to be incorrect.

It's surprising, isn't it?

They are producing higher numbers than the average new product online reseller.

According to the article, cash cow products like croquettes and prepared foods are pushing up the overall profit margin.

While I think there are some items with 10% or extremely low margins, the existence of these fast-selling cash cow products allows them to generate solid profits, which is why they can afford to pay for fixed costs that are by no means small, such as labor and utility expenses.

How do you compare to such supermarkets?

Building a portfolio of products and income

In my case, I do handle products with a profit margin of around 5%, but I also handle products that exceed 20% or 30%.

The condition for handling low-margin products is that they must have an ultra-high turnover rate.

And in my case, low-margin items are also used for the Rakuten Shopping Marathon.

They secure solid profits of 20% to 30% elsewhere, and they also have information dissemination income as another pillar.

Building a solid product portfolio based on profit margins and diversifying risk by having multiple income streams is similar to investing, but I think you are less likely to fail if you approach it with that mindset.

I believe the best approach is to have products that generate large profits and solid income pillars, and then use low-margin, high-volume sales with a sense of leeway.

Do you have any wasteful spending?

This is also common, but do you have any wasteful spending?

In recent years, various services have become subscription-based, and people tend to forget about and neglect things they don't really need.

Such wasteful service subscriptions only eat away at your profits, so take some time to review them.

Also, unless there is a compelling reason, you should stop using expensive plans like docomo and switch to a low-cost SIM; this will definitely reduce wasteful spending, and since Rakuten Mobile and Y!mobile maintain sufficient speeds, I don't think it will be particularly stressful.

Also, although many people are already doing this, I make sure to use the Wi-Fi of my internet connection when I am at home.

I also use Wi-Fi at hotels when I'm out, and I try to use it as much as possible wherever it's available.

This is also an important action to curb wasteful spending.

The topic expanded from supermarket profit margins to wasteful spending, but I think this is an important point regarding the characteristics of people who cannot generate solid profits.

If any of this rings a bell, try reviewing your situation immediately.

See you next week!

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