Grocery Outlet Eyes a 'Reset to Value'

While few food retailers would consider the abrupt changes in consumer behavior brought about by the coronavirus crisis to be a positive, some are better positioned for long-term disruption than others.

Emeryville, Calif.-based extreme discounter Grocery Outlet could be a beneficiary, its officials said this week, pointing to strong values on everyday necessity foods drawing new shoppers and larger baskets, widespread industry disruption triggering buying opportunities for excess inventories that make up the bulk of its offerings, and an independent licensee operating model giving each of its outlets local advocates to communicate with shoppers.

The chain, which has historically seen robust sales in uncertain economic times, said comparable-store sales in its fiscal first quarter, which is to end next week and includes the panic-buying onset of the coronavirus crisis, are running in the mid-teens—and presumably could have been still higher had panicked shoppers not cleared inventories. “The demand was pretty extreme and came from out of nowhere. I don’t think there’s a retailer in the consumable business that wouldn't say the same thing,” CEO Eric Lindberg said during a conference call reviewing financial results for its fourth quarter, according to a Sentieo transcript.

“If this [current disruption] leads to a recession, we think this will be a pretty unique situation,” Lindberg added. “We don’t have … a crystal ball of how that plays out. But we do think people will reset again to value. We think Grocery Outlet, because of the model, will be really well-placed to take advantage of that. We’ve seen a lot of new customers in the last few weeks. And we think we'll keep them just because of the simplicity of the model, the hard-hitting values that we have.”

Grocery Outlet relies on a unique model that provides its independent store operators with inventory it buys centrally and they sell on consignment, relying on long-standing relationships with brands and manufacturers to acquire excess inventories, items affected by packaging changes and items nearing “sell-by” dates. President R.J. Sheedy acknowledged that while there could be some changes ahead as brands shift to  focus on staple items, the company was still seeing availability for staple items such as rice and water, while disruption in other areas of the economy brought about by the virus have brought new buying opportunities as well.

“We have been contacted recently here by many, what I’ll call nontraditional suppliers—many companies now that need to move product as their primary retail partners have closed,” Sheedy said. “I’d point to foodservice. Of course, with all of the restaurants and other foodservice retailers being closed, many of them contacting us, asking if we can buy a product. We had some instances with health and supplement suppliers that sell to gyms and other fitness-based retailers reaching out to us with surplus inventory. And then on the hardline side, with all of the retail closures that have happened, we started to hear from them as well.”

Officials described how the crisis has helped to promote cooperation between parts of the company and galvanized its independent operators. For example, it brought the company together.

“Probably the toughest thing for us has been just at the [distribution center] level picking cases,” Lindberg said, explaining that the company made systems adjustment to allow for heavier volume, and relied on volunteer help from headquarter staff. “All volunteers were willing to go out and [trained] on the system and help pick cases. So it's been very much an all-hands-on-deck at every DC.”

Officials and independent operators have also been participating in weekly virtual meetings, exchanging ideas on safety measures and learning from one another. “Not every idea we get from operators is a good one, but we’re filtering the [best] ones and sharing best practices,” Lindberg said.

“Operators are doing well,” he added. “They’re tired. They’re energized. They’re excited to be on front lines. They’ve never seen anything like this. I would say the operators realize that this is way bigger than just selling more product. And this is a time about being open, being safe and being really an anchor in the community. And I would say they're all leaning into that … [and] sort of feeding off of one another. We’re not dictating a whole lot to them unless it’s around brand standards and safety. Otherwise, we're letting them be flexible and use the best of kind of this operator model to benefit in this situation.”

Sheedy acknowledged that increased demand—some from shoppers unwilling to go inside stores—has sparked the company to explore curbside pickup options. “We want get food to folks in any way possible,” he said, noting that some operators are already experimenting with their own programs in this area now.