This paper examines the impact of diversification on the financial performance of publicly traded grocery stores. Using three different approaches, we find that diversification has a positive and significant effect on the financial performance of grocery stores. In addition, multivariate regression analysis shows that while diversification positively impacts financial performance, other factors such as size, market share, and leverage cannot be ignored in explaining financial performance of grocery stores. The results of this paper suggest that diversification into non-food products is a profitable business strategy for grocers.