Your first statement is spot on. Depending on the grocery store/chain, many do actually sell local products. Kroger is one example, as were many grocery stores when I lived up north. As for the profit margin, well, I can go to places like Whole Foods and Fresh Market or whatever its called and pay an arm and a leg or I can grow my own stuff or buy it at farmers markets and can stuff for the winter and shop selectively from there.
The same goes for meat. I have a chest freezer full of deer, a cow we had butchered (went in with a few others on this), and other meat that I didn't pay Whole Food prices for or actually killed and butchered myself.