FD Buyer: Grocery Outlet Grows

Discussion
Jul 02, 2012

Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Dairy Buyer magazine.

Some of the numbers at Grocery Outlet, the 175-store chain based in Berkeley, CA, just boggle the mind.

At any given moment, wall-to-wall, the typical store has only 4,500 unique SKUs. But over the course of a year, the stores together will churn through more than 200,000 unique SKUs as they ring up $1.2 billion in sales.

For the uninitiated, Grocery Outlet is best known for helping about 2,500 manufacturers nationwide sell "problem products" and closeouts at discounts averaging 40 percent to 50 percent to eager shoppers. Most stores are individually owned and range between 16,000 to 18,000 square feet.

Sales have nearly doubled since 2006 and plans call for another dozen stores to be added in the West this year. What’s more, it recently acquired the 13-unit Amelia’s Grocery Outlet in New Holland, PA, to gain a foothold in the east and a new equity partner promises accelerated growth.

Keep in mind that the buyers have little if any idea where most of next week’s merchandise is coming from. Planograms? Outside help with shelf re-sets? What’s that?

About 70 percent of its mix are closeouts or over-runs but that’s still down from close to 80 percent in the middle of the last decade as fresh meat and other items were added in recent years.

"Where we have felt the need to add these convenience items, we put the right retails on them to be at or below the most aggressive retailers in the marketplace," said Weldon Weatherly, director of refrigerated foods. "But the lion’s share of our business is still opportunistic. These items have to be priced right; if we’re priced well on them, there’s a halo effect and it gives customers confidence that we are priced right in the rest of the store."

The main reasons closeouts arrive are a packaging change, an over-aggressive launch or a start-up looking for a place to start. Added Mr. Weatherly, "Then there are cases where the proliferation of private label has knocked items off the shelf. There is a lot of pressure on branded folks — particularly second or third tier — and we are all about brands."

In handling the unpredictability of its mix from week to week, Grocery Outlet counts on vendors to fill in any deficient categories, but also accepts shelf contraction as well as growth regularly based on buying opportunities.

"Most of our vendors and shoppers liken our stores to a treasure hunt because they never know what they’re going to find," said Paul Miller, director of frozen. "People generally know they’re going to find products at a great price, and they may buy more than they need while it is there."

Discussion Questions: Do you see grocery closeout concepts going more mainstream in the years ahead? What challenges may Grocery Outlet face as it expands its concept?

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12 Comments on "FD Buyer: Grocery Outlet Grows"


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Max Goldberg
Guest
6 years 4 months ago

There are many outlets for overstocks of clothing, electronics and other categories. Why not food? Without the certainty that items on a weekly shopping list will be in the stores, consumers may not shop grocery closeout stores as often, but they still offer value seekers a way to save significant savings on grocery items.

David Livingston
Guest
6 years 4 months ago

Going more mainstream would be the worst thing Grocery Outlet could do. Grocery Outlet to me is a unique format, that only they have perfected. Others have tried to copy it, but in my opinion, the others have failed. Grocery Outlet has been the only one I know of that has been able to grow the closeout concept. Just like Aldi has really only been the only retailer to truly compete with the limited assortment store. Save-A-Lot has tried but they still can’t truly compete well with Aldi. Trader Joe’s perfected their one-of-a-kind small store format as well.

Grocery Outlet hasn’t always worked out in new areas. They were forced to shut down all their Texas stores a few years back. That was probably more to do with the Fleming curse. Hopefully they learned from their mistakes and are moving on. The biggest challenge moving east of the Rocky Mountains will be trying to compete with Aldi.

David Biernbaum
Guest
6 years 4 months ago

Grocery closeout stores will do as well as each one’s ability to stay clean, appear diverse in its offerings, and be well enough staffed to serve the customers.

Steve Montgomery
Guest
6 years 4 months ago

Consumers have always liked a bargain. This was true in 2006 before the current economic climate, and is even truer today. Grocery Outlet’s business model of being a predominately independently operated store gives them the entrepreneurial edge that many companies operating similar sized chains don’t have.

Mixing the treasure hunt aspect with the surety of having a selection of all the key categories gives Grocery Outlet a unique positioning. It has certainly proved to be sustainable. The issue they face with growth will be whether or not they can continue to source sufficient “treasure hunt” inventory either from manufacturers or diverters. This is unlike the outlet malls, which have primarily turned into places for manufacturers to sell lesser quality merchandise with brand appeal, for manufacturers are unlikely to risk their brand reputation by lowering the quality of the product.

Dan Raftery
Guest
6 years 4 months ago

Liquidation outlets for food products are a direct result of the hard-won increased efficiencies in the food distribution systems operated by retailers, wholesalers and manufacturers in the US. The growth of the Extreme Value channel is where most shoppers see this inventory, since Grocery Outlet stores have a regional footprint.

But the outlet business is very familiar for pretty much everything else that a person could be looking to buy. Food outlet retailers can learn some valuable lessons from their non-food retailer predecessors. The difference of course is that most of the outlet malls have brand-centric stores. I think Tuesday Morning has weathered the economic slump because it is more efficient for the shopper, and offers the intrigue of the treasure hunt.

As long as grocery closeout operators focus on price and national brand variety, they should be okay. But only as long as inventory remains available. The availability of product is life-critical to the outlet concept.

Gene Hoffman
Guest
Gene Hoffman
6 years 4 months ago

First, what will the mainstream be in the years ahead?

Currently jobs are still tight, only about half of the adult population has to pay any Federal income tax and food stamps are rising rapidly. So discounted and distressed products have become more acceptable to many consumers. If this economic condition continues in the future, then the grocery closeout concept could well become the mainstream and Grocery Outlet would well positioned.

However, if the economy and employment improve in the future and a larger percentage of citizens can pay some Federal income taxes, then the Grocery Outlet will just be a another competitor to Aldi and there won’t be a great need for such merchandising in that mainstream even though “problem products” will still be available.

Cathy Hotka
Guest
6 years 4 months ago

Ask consumers what they think of a meal-sized package of hamburger that costs $8, shrunken ice cream containers and Barbie-sized cracker boxes, then ask them if they’d be interested in a discount grocer. The answer will be an enthusiastic yes! …Although they’ll still want to visit Wegmans and Whole Foods for treats.

Ed Rosenbaum
Guest
6 years 4 months ago

This might be the next big thing to hit the grocery world. I can imagine some of the executives now sweating over this concept coming East.

Craig Sundstrom
Guest
6 years 4 months ago

Given their model — i.e. that they’re dependent on what are essentially the production and/or inventory management inefficiencies of others (closeouts, overstocks and production overruns) — one challenge would presumably be improvement in those areas by such “suppliers.” (If I wish them well, as I oft do, must I wish the others ill?)

Anne Bieler
Guest
Anne Bieler
6 years 4 months ago

This could be another concept gaining some traction going forward — if it rewards shoppers at each visit.

As always execution is key to sustainable growth. Is there a good reason to visit another grocery destination? Can grocery outlet concepts provide a unique shopping experience for enough shoppers? The right concept will resonate and pull shoppers in, if it is correctly positioned and done well.

Dollar stores used to be a very different store 10 years ago. Now they have large grocery areas, chilled and frozen cases, their own brands and value differentiated packaging from some brand owners — and potential for continued growth.

Tony Orlando
Guest
6 years 4 months ago

I have been doing this since 1982, when I got my first load of assorted frozen and fresh meat items from my warehouse. We bought it for pennies on a dollar, and sold it in one day for ridiculous prices. After that it gets in your blood quick, as your customers always ask for the next crazy deal you are going to have.

Brokering and bidding on deals is sometimes crazy, but it pays the bills, as the demand far out paces the supply. Last fall we sold over 600 6-lb. gourmet cheesecakes for $9.99, and the quality was first rate, only the cuts on the cake were different.

People want deals, period. An Independent has the luxury of doing this, as there are deals every day out there waiting for them. I am glad I got into this years ago, and hope to do it for many more. Jump in, it’s FUN!

Tom Redd
Guest
6 years 4 months ago

The concept is totally logical for the times. I know that the style of this type channel is important. This “style” means it is clean, dependable, and a solid customer-focused staff. Deal shopping makes saving money FUN and thus maps into today’s GAME of retail. T

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