This week, Grocery Outlet reported a total sales increase of +11.7% driven by new stores and a +2.9% comparable-sales increase. Comparable transactions were up +5.1%, offset by average transaction size, which reflects fewer units in the basket (a frequent topic of ours). Margins have been under pressure due to previously-announced disruptions from the implementation of new supply-chain technology platforms, and management lowered its outlook for the year. (Most of the disruption has passed, and management plans to see cleaner financial results in the current and future quarters.)
Management noted a demand slowdown in the second half of June and through July, the result of “promotional and pricing activities from key competitors, putting further pressure on our relative value.” In response, Grocery Outlet is telling its suppliers to lower their prices so that Grocery Outlet can put more “Wow!” in front of its customers. Consequently, Q3 2024 comparable-sales are to be lower--likely in the 1.5% range--reflective of the softer traffic and deflation. Visits per location have moved similar to comparable transactions as shown in the table below. That performance in contrast to say, Food Lion, gets at the heart of the competitive matter for Grocery Outlet and the industry: no one is staying in their “swim lane” and it's an all-out food fight between discount, conventional, mass, club, QSR, and full-service restaurants for share-of-stomach and household loyalty. (Kudos to Sprouts for their strong results and exectuion.)
Ahold Delhaize reported a comparable-sales decline of -0.4% for its U.S. business (Giant, Giant Food, Food Lion, Hannaford, and Stop & Shop). The results showed improving volume trends, driven by more focus on private brands and recent investments in its loyalty rewards (which most brands are doing, thus the increase in industry visits and loyalty households). Management intends to close 32 Stop & Shops by year-end. Food Lion and Hannaford led in sales growth. Management emphasized its “Densify & Grow” strategy, which will include a more pronounced organic store growth and remodel program. Raleigh-market remodels are expected to be done this summer. Wilmington, NC was completed last year and as shown below, those stores are outgrowing the chainwide and statewide averages.
