Grocery Outlet’s value image improves with shoppers CEO

Grocery Outlet’s value image is improving with shoppers, CEO Jason Potter told investors. The discounter’s financial results have strengthened after the company made key adjustments to its opportunistic supply chain and messaging.

Grocery Outlet’s net sales climbed 1.1% year over year during its second quarter, reaching $1.19 billion, the company announced Wednesday. Comparable-store sales dropped 0.3%, though the figure still beat the grocer’s internal expectations.

The slight decrease in identical store sales growth came from a dip in average transaction size, which was partially offset by an increase in the number of transactions, according to the earnings release. While Grocery Outlet recorded slower year-over-year net sales growth in Q2 compared to the prior quarter, its same-store sales actually improved by 70 basis points.

Potter said the results reflect progress since January on stabilizing the business. A big part of that effort involves strengthening value messaging. Grocery Outlet is rolling out new in-store signage, aligning online prices with store prices, and revamping how it communicates low prices to consumers.

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The company has also improved its opportunistic assortment by enhancing sourcing, product flow, and store-level execution. It expanded key supplier relationships as well, with year-over-year growth in opportunistic units per transaction improving significantly relative to the first quarter.

Paul Miller, who returned to Grocery Outlet in June as chief purchasing and merchandising officer, played a key role in the merchandising revamp, Potter noted.

“With a stronger assortment and better analytics, we can deploy marketing and promotional spending more precisely,” Potter said. “That will allow us to rely more on product and marketing to drive comps, and less incremental price investment in the second half of the year, even as the competitive environment remains promotional.”

The discount grocer introduced a new point-of-sale feedback system at 100 stores. The tool connects customer responses with transaction data to help identify service gaps.

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Grocery Outlet also launched a dynamic routing program at about 200 stores. The system removes ordering constraints and optimizes delivery routes.

During Q2, Grocery Outlet opened 10 stores and closed 12 stores. Nine of the closures were part of a previously announced restructuring plan that included shuttering three dozen locations. The discounter ended the quarter with 547 stores across 16 states. As part of ongoing remodeling efforts, Grocery Outlet plans to complete approximately 100 refreshes by the end of the year.

While Grocery Outlet’s produce sales softened during the quarter due to consumer concerns over food safety, Potter said the discounter’s products have not been impacted by the cyclospora outbreak. As a result, the company expects a roughly 1% hit to its third-quarter comparable-store sales.

“Customers are responding to the stronger opportunistic offering and the clearer value messaging,” Potter said. “Operator engagement has improved, and our sharper approach to execution and capital allocation is also beginning to improve performance.”