Why Like-For-Like Sales Growth Is The Ultimate KPI In Grocery Retail

By Simon Dunn, Managing Director at Optima Retail – experts in Category Management

In grocery retail, like-for-like (LFL) sales growth is more than just a key performance indicator – it’s a fundamental driver of profitability. Given the razor-thin margins in the industry, even small increases in revenue can have a significant impact on bottom-line profit.

The reason? The cost structure of grocery retail is dominated by fixed & semi-fixed costs, meaning that in the short term, most operational expenses remain the same regardless of whether sales rise or fall. This makes incremental sales incredibly valuable.

Why Small Sales Increases Matter So Much

Grocery retail has a fundamentally high fixed-cost base. Property leases, store operating expenses, head office & distribution network costs remain largely unchanged whether sales rise or fall. This means that any increase in revenue, after covering the cost of goods, contributes disproportionately to profit.

Last summer, I travelled to Denmark and had the pleasure of discovering Meny Supermarkets. Dagrofa is a joint owner of the chain, and their 2024 results give a graphic illustration of how this works – delivering a 3.4% increase in turnover, but a 20% increase in profit.

While clearly not all the profit increase can be attributed to the growth in revenue, it does illustrate a fundamental truth: because many retail costs are fixed, even small LFL gains can have an outsized impact on profitability.

Grocery Retail’s Razor-Thin Margins

Some of the world’s largest retailers operate on net operating margins of just 2-4%: Tesco (UK), Walmart (US), Carrefour (France) & Aldi (Germany).

These figures highlight just how tight profitability is in the sector, with large grocery retailers relying on scale, efficiency & relentless cost control to survive.

If revenue shrinks, they struggle to cut costs quickly enough to maintain profitability.

The Fixed-Cost Nature of Grocery Retail

Unlike industries where costs scale more directly with revenue, grocery retail carries significant fixed expenses:

• Property Costs – Rent, leases & business rates on store locations are locked in and don’t fluctuate with daily sales.
• Head Office & Supply Chain – Large grocers have extensive back-office operations, distribution centres & logistics networks. These functions need to operate at scale, but again in the short term costs don’t change dramatically with sales fluctuations.
• Store Operating Costs – staff colleagues, energy bills & general maintenance stay relatively constant – if daily sales for a store increase by +10% from £50,000 to £55,000, these costs may increase, but not by as much.

The Power of Marginal Profit

To illustrate, consider this scenario where the retailer increases sales by 10%. Because fixed costs remain unchanged, the only additional expenses relate to fulfilling these extra sales – this is called the marginal cost.

• Cost of goods may account for 70-75% of the retail sale, leaving a gross margin of 25-30%.
• Additional transaction, labour & supply chain costs will apply, but fixed costs (rent, store heating, depot networks) do not.
• The marginal profit on these extra sales could easily reach 10-12%, compared to the industry’s 2-4% operating margin.

This demonstrates why small sales increases can disproportionately drive profitability.

And the reverse is also true: even a minor LFL sales decline can rapidly erode profit, forcing cost-cutting that may weaken future performance.

A retailer experiencing sustained LFL growth can re-invest in price, customer experience and innovation – creating a virtuous cycle. Meanwhile, a retailer facing declining sales may be forced into cost reductions, reduced investment & (worst case scenario) store closures – a vicious cycle that’s difficult to escape.

Implications for FMCG / CPG Category Managers

For consumer goods manufacturers, LFL sales dynamics have major implications. Retailers depend on suppliers to help drive sustainable growth, making category managers key strategic partners.

Here’s how category managers can influence LFL performance:

1. Ensure Product Availability – Out of stocks mean lost sales. Optimising planograms to maintain availability (not squeezing in that last SKU!) and thinking about ease of replenishment keeps more products in stock & prevents shoppers from switching to competitors.
2. Maximise Shelf Productivity – Retailers ultimately assess ROI on every SKU. Category managers must prove how their products drive incremental category growth rather than just cannibalising other lines.
3. Design Smart Promotions – For the category, discounts should build long-term shopper loyalty, not just short-term volume spikes. Promotions need to grow sustainable category value.
4. Encourage Larger Baskets – LFL growth comes from either more shoppers or higher spend per visit. Trading customers up to premium SKUs & aiming to drive cross-category purchases can help boost revenue.
5. Deliver Meaningful Innovation – Retailers prioritise NPD that genuinely grows categories. Innovations should solve real shopper needs & come with strong data and insights to explain HOW they will drive incremental category sales to justify their space.
6. Manage Sales Declines Proactively – When sales fall, retailers cut underperforming SKUs & focus on resilient segments. Category managers must act early to pre-empt any issues, protecting momentum & maintaining their brands’ relevance for the long term.

The Bottom Line

Grocery retail success isn’t just about expansion – it’s about maximising efficiency in existing stores. Because of the high fixed-cost structure and low net margins, even small revenue increases can drive significant profit growth.

For category managers, this means one thing: every pound of additional sales matters. Strategies that protect and grow total category LFL sales are essential – not just for retailers, but for brands looking to secure a sustainable place in a competitive and fast-moving market.

At Optima Retail, we are Category Management experts, so if you need any advice on what may be right for your brand or would just like a quick chat to explore other options for how to address a particular challenge, please do get in touch as we’d love to help.