Grocery Outlet’s Q4 2023 results were impacted by known supply chain issues, which resulted in higher out-of-stocks. Sales increased only +6.3% as comparable-store sales increased only +2.7% despite a +7.5% increase in comparable-transactions. Less items on the shelves led to fewer items in the basket and a -4.5% decrease in average transaction size. The earnings release read, “The company experienced disruptions as a result of the implementation of new technology platforms in late August 2023. Such disruptions are estimated to have negatively impacted comparable store sales by approximately 200 basis points and gross margin by 130 basis points in the fourth quarter.”
Our data shows a distinct softening in year-over-year visitation trends starting in July compared to steady growth at Aldi. Moreover, Grocery Outlet visits trended down from that month versus an uptick for Aldi. From this, we conclude that the out-of-stocks are also impacting visits.
For 2023, 38 new Grocery Outlet locations were added, and the chain ended the year with 468 stores in nine states. For 2024, 15-20 new locations are planned, as well as a 3%-4% comp increase and a double-digit increase in profits. In addition, 40 new stores will come from the acquisition of United Grocery Outlet, an "extreme value, discount grocery retailer operating throughout the Southeastern United States" (the deal is expected to close in Q2 2024). The fewer “organic” locations implies that the United Grocery Outlet deal was in the works for some time. Of note, United Grocery Outlet is to be converted to the Grocery Outlet Independent Operator model. Grocery Outlet CEO RJ Sheedy said, “We are excited to be acquiring United Grocery Outlet, which adds 40 stores to our network. This is an ideal strategic fit given our similar business models, customer value propositions and shared mission of serving and helping others. This acquisition provides Grocery Outlet with scale in a new geography as well as a platform for future expansion in the Southeast...Their stores averaged 17,000 square feet and have seen healthy same-store sales growth in recent years, driven by both transaction count and ring...This is an exciting addition as we pursue our white space opportunity of over 4,000 stores across the U.S. Distribution center infrastructure in this region also provides us with better access to opportunistic product that can benefit all Grocery Outlet stores. We have many levers to accelerate sales growth in partnership with the United Grocery Outlet team.” Placer shows solid traffic growth for United Grocery Outlet on a one- and four-year basis.
Beyond United Grocery Outlet and 2024, Sheedy shared, “Our real estate pipeline is healthy with approved sites for 2025 in good position to deliver our 10% annual growth goal. Given this, most of our recent real estate efforts have been focused on building the 2026 pipeline. This will add to what is currently over 100 approved sites for 2025 and 2026 combined."
On the tech and supply chain issue, outgoing CFO Charles Bracher said, “With respect to our system transition, while we have made progress, the data integration efforts have taken longer than anticipated. Because of this, we expect we'll continue to experience P&L impacts during the first quarter.” As part of the remedy for problems, Grocery Outlet hired Ramesh Chikkala as EVP, Chief Operations Officer. Sheedy commented, “Ramesh's experience in retail and operations organizations includes 14 years at Walmart, where as SVP, he led its global supply chain and food manufacturing operations as well as its global technology organization. Most recently, Ramesh has been a senior adviser to Kearney in their operation supply chain technology and consumer industry and retail practices. I look forward to working with him to further optimize our supply chain and technology infrastructure to support our long-term growth.”
