Grocery Outlet Is All About Saving Money On National Brands And Wants To Go National

The "extreme-value" grocer focuses on national brands as other grocers push their store brands

Originally published on Forbes.com.

If you are fortunate to live near one of the 300 Grocery Outlets in California, Idaho, Nevada, Oregon, Pennsylvania or Washington state you are used to seeing national brands selling for 40 to 70 percent less. A four pack of Evian 1.25 liter bottled water typically sells for $9.99, at Grocery Outlet you could have bought 8 bottles for $3.99. The very trendy Halo Top ice cream can be found at other stores selling for anywhere from $6 to $11.99 a pint – at Grocery Outlet they had a sale that Layla Kasha VP of Marketing calls her “favorite buy ever” the chain sold 4 pints for $5.99

How do they do it?

It’s called opportunistic buying, and they work with national brands who have excess inventory, seasonal closeouts or are changing packaging to buy these foods and beverages at deep discounts. The company stated back in 1946 when the founder Jim Read bought surplus canned food from the government and opened up retail stores to sell it at super low prices to consumers. The company continued to expand and went beyond its sourcing from the government to contract with national brands including Del Monte, ConAgra, Quaker Oats and Revlon. Today the company is run by the third generation, MacGregor Read and Eric Lindberg (who is married to a Read) who are co-CEOs and partners with the private equity firm Hellman & Friedman.

Lindberg told me that 60% of what is sold in the stores is bought on opportunistic buys and that they are expanding to include more fresh foods and that one of their fastest growing sections falls under their NOSH program: natural, organic, specialty & health.

This partnership has allowed Grocery Outlet to expand to 300 stores (with 30 more scheduled for 2018 and 40 to be added in 2019) and reach $2 billion in sales last year, according to Supermarket News.

What is different about Grocery Outlet’s business model is that the stores are independently owned and operated by local families. The families determine what products that want to carry and their focus is to be hyper local to meet the needs of their neighborhood. According to Eric Lindberg they receive 1,200 to 1,500 applications a month to be a Grocery Outlet owner and select a mere 10.

Some of their owners are former ALDI store managers who want to be owners; a chain that the company sees as a direct competitor but their advantage, according to Lindberg, is that they have a greater local involvement and sell branded foods and beverages at a time when the grocery industry is rapidly increasing its focus on its own store brands.

Grocery Outlet calls itself an “extreme-value grocer” and a recent look at a few more of their offerings support the claim: Power Bars that retail for $1.99 each sold here for 4 for $1 due to a package design change, Quest Nutrition Bars had excess production and sold for 99 cents instead of their normal $3 price tag, and Honey Bunches of Oats breakfast cereals sold for $1 far less than the $4.99 you would pay at a traditional supermarket. One drawback is that since these are opportunistic buys, what you find in a Grocery Outlet today will be different than what you find there on your next shopping trip.

It’s easy to draw comparisons to dollar stores, which also typically buy opportunistically and have the same adventurous feeling to see what you might find – but there is a huge difference, most of the newer Grocery Outlet stores like the one owned by Sandra and Carols Torres (pictured above) in downtown Los Angeles are beautiful and gives one the feeling of shopping in an upscale supermarket.

What does the future hold for Grocery Outlet? Lindberg and Hillman Friedman want to bring the banner national. While both ALDI and Lidl impress him and he says that they compete well with both. In an era where national brands continue to lose market share and struggle against store brands, Grocery Outlet might just be their rescuer.