Grocery Outlet operates more than 160 deep-discount supermarkets in a half dozen western states, primarily California, Oregon, and Washington. The stores, which average about 20,000 square feet, sell a wide range of name-brand products, including groceries, wine and beer, fresh produce, household items, health and beauty care products, and over-the-counter drugs at up to 70% less than traditional supermarket chains. The stores sell manufacturers' excess inventory to keep prices low. About a third of Grocery Outlet's stores are located in California. Founded in 1946, the third-generation family-owned company rings up more than $1 billion in sales.
Following an infusion of private equity capital, Grocery Outlet launched a major expansion. Indeed, the discount grocer plans to add about 100 stores over the next few years, primarily in urban areas of California, Oregon, and Washington. It also has stores in Arizona, Idaho, and Nevada.
Grocery Outlet's extreme-value proposition is well suited to today's retail climate, where consumers are stretching their dollars to meet basic needs. To tout its bargains, the chain has launched a "Feed your family for just $3 a Day" promotion. Indeed, Grocery Outlet claims to be 20% to 25% less expensive than Wal-Mart Supercenters and 40% to 60% less costly than conventional supermarkets, such as Kroger.
The chain, which got its start selling government surplus canned goods, has evolved to carry a full line of groceries, including fresh items like produce, meat and milk. Organic goods and beer and wine are fast-growing categories. However, because it relys on manufacturers' excess inventory, the selection can vary widely from day to day, giving the store a treasure-hunt feel. A typical Grocery Outlet store might carry 4,000 products, vs. the 40,000 found in a traditional supermarket like Safeway.
Grocery Outlet's business model is a twist on traditional franchising. While the stores are independently operated, Grocery Outlet owns the store leases and heavy equipment such as refrigerator cases and cash registers. Store operators hire and train employees, and buy fixtures like shopping carts and computers.
The extreme-value grocery chain sold an equity stake to Boston-based private equity firm Berkshire Partners in 2009. (The size of Berkshire's stake was not disclosed.) – less