Dive Brief:

• Grocery Outlet plans to notably expand its currently small private label portfolio, company executives said during the fourth-quarter earnings call on Tuesday.
• “Unique and differentiated private label products represent the next multiyear phase of everyday assortment enhancement” for the company, Grocery Outlet President R.J. Sheedy told investors on the call.
• Executives said adding more private brands will help boost margins and the company’s value proposition to consumers. 

Dive Insight:

Grocery Outlet executives didn’t provide extensive details about the company’s private brand expansion plans, including its current private label penetration or the categories where it plans to add items. The discounter’s growth in this area is notable given its legacy focus on selling name brands and relying on opportunistic buying to source most of its items.

Grocery Outlet’s private brand expansion is connected to its broader SKU expansion in recent years, which has seen the discounter add more NOSH, fresh, ethnic and local items. It also comes as competing retailers ramp up their store brand investments, and as research shows that consumers are growing increasingly comfortable with buying private labels.

Sheedy emphasized that increasing Grocery Outlet’s private label assortment won’t compromise the company’s core business model.

“We're not introducing private label to replace or as a substitute for opportunistic [items],” Sheedy said during the earnings call. “We have plenty of room to grow and bring on more opportunistic items.”

Grocery Outlet sees the private label expansion as a “significant long-term opportunity” and as a way to strengthen the company’s value proposition for customers, along with drive sales and profit, Sheedy said.

“Think of this year as us building the capability and really setting the foundation, so building the capability and leadership talent, starting to build out the team,” he said. “And then the strategy and the foundation for how private label will enhance the sum.”

In the Q2 earnings call in August, Sheedy had noted that Grocery Outlet had been working to expand its private label SKUs and signaled that the discounter would focus on more private label development.

“We're seeing nice incremental sales. ... We've introduced some private label, some unique products, but we think the opportunity is still largely ahead of us, so we're excited for that continued growth,” Sheedy said during the August call. 

Along with private label, Grocery Outlet sees other areas for more growth.

Sheedy said the discounter sees the potential runway to expand its current store fleet to more than ten times its current count, with 25 to 28 net new stores expected this year. Grocery Outlet opened 10 new stores during Q4, ending the quarter with 441 locations across eight states.

“We continue to expand our footprint despite construction challenges, and we expect the pace of openings to accelerate in the second half of the year to our 10% annualized new unit growth rate,” Grocery Outlet CFO Charles Bracher said in a statement. 

Bracher told investors Tuesday that roughly one-third of its new store openings last year were on the East Coast and that this ratio will remain about the same for this year. In 2024, Bracher said it is expected that new store openings will be evenly split between the East and West Coasts. 

“We very much are sticking to the sort of crawl, walk, run philosophy in the East Coast,” Bracher said.

Grocery Outlet is also looking to add “leadership talent” this year and continue its work to digitize its business, Sheedy said. Tech enhancements will mark a “big step forward” for the company this year, with those slated for 2023 impacting purchasing, inventory management and store operations, he said.

“One example is our personalization app, which is currently being piloted in Washington State,” Sheedy said. “This new program extends the treasure hunt beyond the four walls of the store and early feedback is positive. In addition to customer benefits, this app will generate robust shopping data to enhance our current marketing efforts and improve customer engagement over time.”

For its Q4, which ended Dec. 31, 2022, Grocery Outlet reported comparable store sales growth of 15.1% driven by a 10% increase in transactions coupled with a 4.6% boost in average transaction size.