At a time when shoppers are looking for grocery discounts, you’d think it would be a great time to be a grocery discounter.
That’s true in the case of ALDI, which is rapidly expanding to serve deal-seeking shoppers across the country, with plans to open 800 new stores nationwide by 2028.
Grocery Outlet, in contrast, appears to be struggling to get shoppers excited about its deals, and is cutting back on its expansion plans as a result.
A few months after the grocery discounter’s boss admitted that “we missed the mark on value” and the retailer was “paying the price” as a result, he said last week that things are looking up. But “there’s still more work to be done,” he acknowledged.
“Grocery Outlet is known for delivering unbeatable value, a unique treasure hunt experience and amazing customer service,” outgoing interim CEO Eric Lindberg told investors. “On the surface, this is a simple business that performs very well when operations are executed properly.”
If only all of those operations were being executed properly. Lindberg blamed everything from rocky technology upgrades, to overly ambitious expansion plans, to a lack of clear messaging about the values it offers, for Grocery Outlet’s inability to become as great a success story as the likes of ALDI have been recently.
“We were trying to do too much too fast,” Lindberg said. So the first order of business – scaling back those expansion plans. Grocery Outlet had planned to open more than 50 stores this year, “which I think would have been a mistake,” Lindberg admitted. So plans now call for opening no more than 35 new stores, and only in markets where Grocery Outlet is already known, so it doesn’t have to take the risk of introducing itself to shoppers who aren’t familiar with the brand.
In the meantime, shoppers may notice better values and better communication about those values. The retailer is “working on a more targeted approach with some exciting new messaging during the first quarter that centers on value and weekly deals,” Lindberg teased.
Grocery Outlet started out as a closeout grocery store, where you never knew what bargains you might find. Over time, though, it started adding more everyday items that were not necessarily big bargains, in order to become more of a one-stop grocery shop.
Some say that’s where Grocery Outlet lost its way. “GO’s value to me, is that they discover deals and pass those deals on to us treasure hunters looking for deals,” a commenter wrote recently in a Reddit forum. Instead, those doorbuster deals are increasingly mixed in with more and more regularly-priced items. “I’d rather see an empty egg cooler than see eggs at $9-$18,” the commenter continued. “If you can’t offer deals it should not be on the shelves.”
“We’re focused a lot on core necessities,” Grocery Outlet’s Senior Vice President of Strategy and Finance Dorian Bertsch acknowledged in the call with investors. “But we’ll continue to put in some differentiated items that we think can add to the treasure hunt experience even more, as we continue to grow this area of the business.”
He explained how Grocery Outlet aims to save shoppers about 20% on their total grocery bill as compared to other discounters, and 40% versus traditional supermarkets. The super deals offer even greater savings of 60% or more. “Think of this as the extreme value, treasure hunt driving items that people tell their friends and families about,” Bertsch said. “This is where we said last call, we had some work to do, and we really improved that throughout the course of the quarter.”
Grocery Outlet is also trying to keep prices down on everyday items by introducing more store-brand products. “We launched about 180 items by the end of last year. That’s ahead of our original plan when we were thinking more 100,” Bertsch said. “We’ll launch another 150 or so this year as well.”
Overall, “we think we’re hitting the mark on better value to the customer,” he concluded, with “more consistent inventory, which is something our customers have told us they want.”
As Lindberg steps aside and newly-named CEO Jason Potter takes over, Lindberg said he still believes the 400-store chain has the potential for operating more than 4,000 stores across the country someday. But that’s a long way off. “We have so much opportunity to grow this business,” Potter said, “creating an incredible customer experience that generates that feeling of the thrill of the treasure hunt.”
That’s their hope, at least. Deal-seeking shoppers hoping a new Grocery Outlet will come to their community might have to wait a little longer now, while current Grocery Outlet shoppers hoping for greater savings may see some more low-priced alternatives to the bigger stores. And investors who are getting antsy about the retailer’s performance will be watching closely to see if these new plans begin to produce results.
Image source: Grocery Outlet
