Dive Brief:
- Grocery Outlet’s net sales increased 1.1% year over year during its second quarter, to $1.19 billion, the discounter announced Wednesday. Comparable-store sales declined by 0.3%.
- The Q2 results outperformed the grocer’s expectations as efforts to better communicate value gained traction among consumers, Jason Potter, the company’s president and CEO, said during its Wednesday evening earnings call.
- Potter said that while Grocery Outlet’s products have not been impacted by the cyclospora outbreak, the discounter’s produce sales softened amid consumer concerns over food safety, and, as a result, the grocer expects a roughly 1% hit to its third-quarter comp sales.
Dive Insight:
While Grocery Outlet recorded slower year-over-year net sales growth in Q2 than it did during the prior quarter, its comparable-store sales improved by 70 basis points.
The slight decrease in identical store sales growth stemmed from a dip in average transaction size, which was partially offset by an increase in the number of transactions, according to the earnings release.
Potter told investors that Grocery Outlet has made progress since January on its efforts to stabilize its financial results. Part of the discounter’s to-do list for improving its business includes stronger value messaging. Potter told investors that Grocery Outlet is rolling out new in-store signage, working to have online prices match those in stores and revamping messaging to improve consumers’ perception of the discounter’s low prices.
The discounter has also strengthened its opportunistic assortment by improving sourcing, product flow and store-level execution as well as by expanding key supplier relationships, Potter said, noting that year-over-year growth in opportunistic units per transaction “improved significantly” relative to Q1. Paul Miller, who returned to Grocery Outlet in June as chief purchasing and merchandising officer, has played a key role in the company’s merchandising revamp, Potter noted.
“With a stronger assortment and better analytics, we can deploy marketing and promotional spending more precisely. 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,” Potter said.
The discount grocer has introduced at 100 stores a new point-of-sale feedback that connects customer responses with transaction data to help identify service gaps, Potter said. The company also has a new dynamic routing program at about 200 stores that removes ordering constraints and optimizes delivery routes.
During Q2, Grocery Outlet opened 10 stores and closed 12 stores — nine of which were part of a previously announced restructuring plan that included shuttering three dozen locations. The discounter ended the quarter with 547 stores in 16 states. As part of its ongoing store remodeling efforts, Grocery Outlet plans to complete approximately 100 refreshes by the end of the year, Potter said.
“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. Those strengths will be important as consumers spend cautiously and the operating environment remains somewhat promotional.”
