Inflation, at-home eating lift Grocery Outlet’s Q2 comp sales

Dive Brief:

Grocery Outlet reported on Tuesday strong second-quarter results with comparable store sales up 11.2% year over year and net sales up 15.7%, to $897.7 million.
CEO Eric Lindberg told investors that growth in traffic and tickets helped fuel the comp sales. “Inflation remains at unprecedented levels, and value certainly becomes very, very important to consumers. ... We're likely seeing some benefit of the customers shifting from, I'd say, more conventional, more expensive alternatives to the value model,” he said, noting the at-home eating trend “continues to build” due to the higher costs of dining out.
As the discounter sees boosts from price-sensitive consumers amid high inflation, the company raised its full-year guidance for fiscal year 2022 again, after raising it following its Q1 results.

Dive Insight:

Grocery Outlet’s latest earnings report and raised guidance for the rest of its fiscal year show the discounter is benefiting from the turbulent environment of ongoing record-high inflation and supply chain challenges.

The new guidance expects comp store sales to increase between 8% to 8.5%, up from the previously predicted 5.5% to 6.5%, and forecasts net sales to bump up from earlier estimates of $3.39 billion to $3.42 billion to a range of $3.46 billion to $3.48 billion.

“We have never seen the assault on the consumer that we're seeing right now from energy to fuel to pricing — just inflation across the board, stack on top of that demand is creating just a massive imbalance of what's available and what they can get. ... We're starting to see some outstripping of wage gains with inflation, so that’s not good,” Lindberg said.

Rising food prices boosted traffic to the discounter as Grocery Outlet saw increases in new customers during the quarter, along with returning customers, executives said. “Core customers are shopping us more frequently and spending more money,” President R.J. Sheedy said. “We are also observing higher intent from both customers and non-customers to shop us more in the future.”

Lindberg also noted consumers are trading down in categories like meat by switching from beef to chicken.

Executives stressed that Grocery Outlet’s model of opportunistic buying with a diversified supplier base and value-focused assortment have helped shield it from those woes. While supply chain challenges continue to cause inventory issues for suppliers, Grocery Outlet executives said they’re “feeling good” overall about its inventory levels.

As Grocery Outlet continues its store expansion, Lindberg said it’s focusing on developing its presence in the Mid-Atlantic market, with three of its seven new stores opened in Q2 built in that region, Chief Financial Officer Charles Bracher said during Tuesday’s earnings call. That brings its total store count to 425.

“We believe that the greater Mid-Atlantic market represents [a] roughly 250-store-opportunity on our way towards our long-term target of approximately 4,800 stores nationally,” Lindberg said, noting the company will resume its 10% unit growth in 2023.

Grocery Outlet added 150 items during the quarter as part of 600 SKUs added since the past year and is already seeing incremental sales from these new offerings, Sheedy said. The chain is continuing to prioritize fresh foods, ethnic items, local products and Nosh — its natural, high quality and health-based items — as part of its assortment expansion, Sheedy said.

While its foray into e-commerce is still very recent — the discounter partnered with Instacart last year and then linked up with Uber and DoorDash during this quarter — Sheedy said the company is “pleased” with the results so far. Sheedy noted the DoorDash partnership now reaches nearly all of the discounter’s stores.

“These partnerships are helping us capture incremental customers in a margin-neutral, asset-light manner that benefits both Grocery Outlet and our operators,” Sheedy said. “As we continue to broaden product availability through multiple platforms and increase flexibility and convenience, we expect our customer reach and engagement to grow.”

Grocery Outlet is planning to release its mobile app in Washington in the coming weeks. The app allows customers to see top, trending and new items in stores in real-time and view curated product recommendations based on their preferences, “extending the treasure hunt experience beyond the four walls of the store,” Sheedy said.