Dive Brief:

• Grocery Outlet rang up more than $1 billion in net sales during the second fiscal quarter of 2023 — the first time the company has ever eclipsed the billion-dollar mark, according to its Tuesday earnings release.
• Comparable store sales increased 9.2%, driven by a 9.1% increase in transactions as the chain continued to welcome new shoppers. Adjusted earnings grew 29% to more than $133 million.
• Grocery Outlet revised its financial outlook for the year. It now expects comparable store sales to increase 7%-8% instead of its previous 5%-6% guidance. It also raised the range of its adjusted earnings forecast to between $254 million and $260 million.

Dive Insight:

Fast-growing Grocery Outlet continues to capitalize on its differentiated discount model at a time when price sensitivity remains very high among consumers.

During the company’s earnings call Tuesday, CEO RJ Sheedy said it’s welcoming lots of new shoppers looking for better deals to stock their fridges and pantries, as evidenced by the nearly double-digit increase in transactions during Q2. Like Walmart, Grocery Outlet is also welcoming more affluent shoppers into its aisles.

“More customers are shopping us for the first time, existing customers are spending more with us and overall customer satisfaction continues to increase,” Sheedy said on the call.

In addition to beating Wall Street estimates across the top line, Grocery Outlet reported higher-than-anticipated gross margins and raised its annual guidance for the metric by 60 basis points, to 31.3%. Executives attributed the expansion to strong execution by its independent operators as well as a favorable environment for the chain’s opportunistic buying model.

Grocery Outlet is luring shoppers away from traditional supermarkets by touting savings of 40% over those retailers. It’s also able to stand out from discount competitors like Walmart, Aldi and Dollar General by offering elements of each of those models — low prices, national brands and a small store size — under one roof.

The company also credits its independent store operators as a source of financial strength. Sheedy said “IO’s,” as they’re referred to by the company, are forging strong local connections with shoppers. Their ownership stake also motivates them to keep a close eye on stores, helping keep shrink levels down, Sheedy said. 

As it charts a course for nearly 30 store openings per year, Grocery Outlet is maintaining a strong pipeline of independent operators. Last year, the company received 30,000 applications for its IO development program and ended up accepting less than 1% of those applicants.

Grocery Outlet currently operates 447 stores across eight states, and sees a pathway to nearly ten times as many locations in the U.S. over the longer term. In addition to its legacy organic growth model, the company is also evaluating “small regional acquisition opportunities,” Sheedy said. He declined to elaborate when asked for further information during the call.