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Though it has been around for over 70 years, Grocery Outlet's business model perfectly aligns with current retail trends, and it is trying to take advantage.
The off-price supermarket chain filed with the Securities and Exchange Commission this week for an initial public offering with the goal of raising $100M, CNN Money reports. The new capital would help fulfill Grocery Outlet's aim of opening 2,000 new stores in the coming years.
Grocery Outlet's business model consists of buying products straight from suppliers with overstocked products or who had other stores cancel orders. The increased urgency of the suppliers to get rid of their product allows Grocery Outlet to offer prices that it claims are 40% less than its competitors.
At an average of 15K SF per store, the company is comfortable carrying less inventory than traditional grocery stores, and changing it more often. Much like off-price clothing retailers such as T.J. Maxx, Grocery Outlet believes its inventory strategy creates a "fun, treasure hunt-like atmosphere" and a "'buy now' sense of urgency" for its customers, it said in its SEC filing.
With over 300 stores spread among California, Oregon, Washington, Idaho, Nevada and Pennsylvania, Grocery Outlet brought in $2.3B in revenue last year and reported same-store sales growth for the 15th straight year. Of the 2,000 planned openings, the company believes it can deliver 30 in 2019.
As department and apparel stores have suffered from e-commerce siphoning off their sales, grocery stores have continued as strong anchors at many shopping centers. Until Amazon cracks the code of efficient online grocery shopping, the sector is relatively insulated — Grocery Outlet has remained profitable despite having no online sales, for example.
Among the expanding grocery sector, the most aggressive movers have been off-price brands with smaller-than-average footprints, especially European imports Aldi and Lidl. Off-price apparel retailers, like TJX Cos. and Burlington, have been virtually the only brands to be in full expansion mode, and many of them have stores of similar "junior anchor" size.
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