After delaying online shopping, Grocery Outlet Holding Corp. started exploring options for e-commerce partners.
Discussions with potential third-party online grocery vendors are underway, and Grocery Outlet plans to test one or more solutions within a few months, CEO Eric Lindberg said last night in the release of second-quarter results. ‘fiscal year 2021.
“We strongly believe that our stores are the most important growth engine, but we are also exploring complementary ways to reach new customers and create value,” Lindberg told analysts on a conference call after the market closes on Tuesday. “The increased demand for grocery e-commerce now provides us with an exciting opportunity to expand our peak value and ‘scavenger hunt’ experience. We’re excited to start testing various ecommerce approaches to see what works best with our unique model. “
So far, Grocery Outlet’s unique – and highly successful – business model has led the Emeryville, Calif., Based chain to move away from online grocery service because its customer proposition is built on the in-store experience.
Describing itself as an ‘extreme value’ retailer, Grocery Outlet boasts big discounts on branded products and said a typical shopping cart costs about 40% less than conventional grocers and 20% less than that of conventional grocers. of the main discounters. The stores are managed by owner-operators who are independent from the communities they serve, allowing locations to closely respond to changing customer preferences. Buyer savings are realized through a sourcing model of sourcing excess inventory and product overruns directly from thousands of supplier partners. This includes a changing assortment of products with “WOW! »Prize, promoting« treasure hunt »shopping.
However, the online shopping boom sparked by the COVID-19 pandemic has made it clear that consumers want an online grocery option, according to Lindberg and Grocery Outlet President RJ Sheedy.
“We plan to launch a test and learn approach to evaluate various e-commerce solutions such as online delivery and purchase, in-store pickup [BOPUS]”Sheedy said on the call.” These tests will assess several factors, such as alignment with our unique model, operational and technical considerations, and total market desirability. We are currently in discussions with third party partners. potentials, and we look forward to keeping you updated on the launch and progress of these tests. ”
The home grocery trend boosted during the pandemic has also helped Grocery Outlet rethink e-commerce, Lindberg said in response to an analyst question.
“You’ve been listening to us talk about e-commerce for a few years now, and our attitude is simply that stores continue to be really the most important growth engine for us. But what strikes us for electronic commerce, it is especially food which took about 10 years to go from 1% to 5% penetration, then in two quarters, they went to 10% ”, he said. declared. “The reality from our point of view is that it’s not going to come back to 5%, but it’s more likely to come back to 15%. So that gives us a lot of confidence. It’s here, and we can explore a way to reach out to a new customer and deliver what we think are core values across the industry to our existing and new customers.
It is Grocery Outlet’s “hope and intention” to launch real market testing of online grocery solutions “in the coming months,” Lindberg said, noting that retaining the experience of the company’s treasure hunt will be a key component.
“Delivery, BOPUS, we want to explore both,” he explained. “Adoption of both of these solutions has increased, so we believe these are potentially interesting opportunities or approaches for us. Both are in scope as we think about a test. Treasure hunt is also part of the test. Does this translate well online? As items move in and out [of stores], it shows ? Do customers see the excitement online the way they would in the aisles of the store? “We’ll get a better read on this once we’re in the market and we’re in the market.”
For the second quarter ended July, Grocery Outlet’s net sales fell 3.5% to $ 775.5 million from $ 803.4 million a year earlier, when the company posted a gain of nearly 25%. Same-store sales fell 10%, compared to a 16.7% jump in quarter 2020.
First-half net sales reached $ 1.53 billion, down 2.3% from $ 1.56 billion in half-year 2020, when Grocery Outlet posted a 24.9% increase from a year over year. Same-store sales for the first 26 weeks of 2021 were down 9.1%, compared to an increase of 17.1% in 2020.
“We are delighted to have exceeded our expectations for the second quarter as we take advantage of the high sales experience during the first months of the pandemic,” Lindberg said on the call to analyst. “Our same-store sales were slightly better than expected, at -10%, and over two years, they were up 6.7%. The gross margin and Adjusted EBITDA results also exceeded our expectations as we were successful in managing the cost pressures our business faces. “
The NOSH (Natural, Organic, Specialty, Healthy) category was the best performer in the second quarter and remains a driver of Grocery Outlet’s fresh food expansion, Sheedy reported.
“In fresh, we have recently introduced variable weight products in all stores, and we are seeing positive results with new products prepared, both in produce and in fresh meat,” he said. “To support this expansion of the assortment, we will adjust our marketing messages to present both our core value as well as the convenience of the comprehensive store that we offer. We will also continue to communicate entry and exit offers and fresh produce to promote frequency of travel. We have had great success with previous assortment enhancements, and we see an additional opportunity to create more excitement with the next phase of this initiative.
Grocery Outlet opened 11 new stores in the second quarter, ending the period with 400 stores in California, Washington, Oregon, Pennsylvania, Idaho and Nevada, up from 362 a year earlier.
“We remain delighted that the productivity of the new stores is in line with our expectations, with trends in our new Mid-Atlantic stores similar to those of the initial entry into Southern California. We are laying the groundwork for store growth in the East, including investments in purchasing and infrastructure, and we look forward to growing our presence and brand awareness in the region, ”said Lindberg. “Of the 36 to 38 stores that we plan to open this year, we anticipate that three to five of those openings will be in the East, including our first store in New Jersey. We know we have a great avenue for expanding our footprint based on the power of our value proposition and the portability of our model. As we look ahead, we remain committed to achieving our stated goal of 10% annual unit growth. “
In second quarter net income, net income was $ 19.6 million, or 20 cents per diluted share, compared to $ 29.3 million, or 30 cents per diluted share, during the year period former. Adjusted net income was $ 23.3 million, or 3 cents per diluted share, from $ 32 million, or 32 cents per diluted share, in the 2020 quarter, Grocery Outlet said. Analysts, on average, had forecast adjusted earnings per share of 24 cents, with estimates ranging from 22 cents to 27 cents, according to Refinitiv.
First-half net income was $ 38.5 million, or 39 cents per diluted share, from $ 42 million, or 43 cents per diluted share, a year ago. On an adjusted basis, net income for the 26 weeks fell to $ 46.5 million, or 47 cents per diluted share, from $ 60.7 million, or 62 cents per diluted share, in half-year 2020.
Also on Tuesday, Grocery Outlet announced the appointment of Arvind Bhatia as Vice President of Investor Relations, reporting to CFO Charles Bracher. Prior to joining Grocery Outlet, Bhatia held similar positions at At Home Group and Dave & Buster’s Entertainment after working as a research analyst at various Wall Street companies.