Grocery Outlet snaps up discount grocery chain for $62M

Dive Brief:

Grocery Outlet announced Thursday it has agreed to acquire discount grocer United Grocery Outlet from affiliates of Gen Cap America, Inc. and current and former United Grocery Outlet (UGO) management. Grocery Outlet will pay approximately $62 million for the chain, according to a regulatory filing.
The purchase includes United Grocery Outlet’s 40 stores and a distribution center in the Southeast.
The deal marks the latest move by Grocery Outlet to rapidly expand into new markets across the U.S.

Dive Insight:

With the acquisition of UGO, Grocery Outlet will extend its reach into Tennessee, North Carolina, Georgia, Alabama, Kentucky and Virginia.

“This acquisition provides Grocery Outlet with scale in a new region as well as a platform for future expansion in the Southeast,” Grocery Outlet President and CEO RJ Sheedy said in a statement.

Sheedy said in the statement that United Grocery Outlet is “a natural fit given our similar opportunistic buying strategies, customer value propositions, and shared mission of serving our communities.”

Founded 50 years ago, Athens, Tennessee-based United Grocery Outlet operates 24 stores in Tennessee and will soon open another one in the town of Hixson. The discounter has nine locations in North Carolina, one each in Alabama and Kentucky and four in Georgia, according to its website. The company’s distribution center is located in Athens, Tennessee, where the company is headquartered.

The acquisition is expected to close early in the second quarter, subject to customary closing conditions. Grocery Outlet will pay for the acquisition with available cash, according to its regulatory filing.

Grocery Outlet operated 455 stores at the end of its third quarter and has recently focused on expanding into new markets, such as opening its first store in Las Vegas in August and its first store in Ohio in November.

Grocery Outlet sees room to operate over 4,000 stores across the U.S., Sheedy told investors during an earnings call in November.

“Our new store growth efforts for 2024 and beyond remain focused on organic growth together with new real estate opportunities that align with our long-term geographic expansion and store growth strategies,” Sheedy told investors, noting that the discount grocer would explore “strategic regional acquisitions” as a complementary growth opportunity.

Along with the newly acquired UGO stores, Grocery Outlet plans to open 15 to 20 stores in existing markets this year for a total of 55 to 60 net new stores in 2024, according to Thursday’s announcement.

Discount grocers are pressing their advantage as inflation-weary consumers have turned to them. Competitor Save A Lot has said it sees room to expand from its current store count of nearly 800 stores to 3,000 during the next few years. Aldi announced last summer plans to buy approximately 400 grocery stores across five Southeastern states as the discounter rapidly grows its U.S. presence, which currently totals more than 2,350 locations.

Grocery Outlet recently recorded its second consecutive quarter of $1 billion in net sales. Grocery Outlet said that the United Grocery Outlet acquisition is expected to be modestly accretive to the company's 2024 earnings.