Improving the in-store experience as well as product mix and inventory levels have been guiding decisions at Grocery Outlet this year.
President and CEO Jason Potter, who has been at the helm of the Emeryville, California-based grocer since Feb. 3, outlined Grocery Outlet’s priorities during a Nov. 4 earnings call covering third-quarter results.
“We’ve spent much of this year engaging with customers and our IOs [independent operators] to discern where we could drive a better in-store experience,” Potter said. “Feedback from the survey work indicated that our customers felt a lack of consistency in their store visit experience.
“While customers appreciate the value we offer and enjoy the ‘treasure hunt’ aspect of shopping in our stores, they indicated that the experience was challenging to shop and that a lack of consistent availability of various key items hurt their trust in us.
“We want our customers to see us as the place where they can shop every day confidently, creating an experience that delivers value,” Potter said.
Based on that feedback, a store refresh project began rolling out in the third quarter to an “initial wave” of two stores.
Potter said they focused on three goals in the pilot stores: improve the store layout, expand and standardize the core product assortment and elevate the company’s value messaging through signage.
“Customer receptivity has been outstanding. These three initiatives have driven mid-single-digit comp lift in our two pilot stores with a full quarter of reporting, and we have several more stores in various stages of completion,” he said.
“While we learn more about the sales lift potential as we touch additional stores, based on the promising early results we’ve seen so far, we plan on … scaling the store refresh.”
Company executives believe the refreshes will benefit “the vast majority of our store base,” which now totals 560-plus stores in 16 states in the West, Southeast and Northeast.
By the end of 2025, about 20 stores will have been refreshed. “We also expect to complete at least another 150 stores by the end of ’26 and complete the balance of addressable stores in ’27,” Potter said.
Improving in-store experience
In the pilot stores, the layout has been changed to “create a more inviting and more intuitive shopping experience,” Potter noted.
“When shoppers now enter our store, they enter with a clear sight line to understand the layout. We’ve removed the forced flow and have logically grouped categories throughout the store and ensured the fresh departments are merchandised together.”
Fresh departments were moved closer to the front of the store, starting with produce, then meat and seafood, with priority given to top-selling items.
“Getting fresh right is a big part of helping us earn the opportunity to grow basket with our customers,” Potter said.
General merchandise and health and beauty products were moved farther back in the store.
“Now these may sound like modest changes, but they’re delivering big results. Bringing produce up front and center and expanding our offerings of high-quality fruit and vegetables has driven double-digit comp lift in meat and produce within our test group,” he said.
In Southern California, Grocery Outlet is “testing a model store with a more demographically relevant assortment with supporting marketing and promotion designed to serve the large and growing Hispanic population in the region,” Potter said.
“While our tests are early, we’re seeing encouraging results from this test, and we see an opportunity to deploy this widely through the region.”
Potter said an IO in Rohnert Park, California, provided encouraging feedback: “I’m really excited about the freshness, openness and clarity the changes bring to the store, and that is exactly what customers are telling us.”
Potter expressed optimism that the changes will yield improved results for the discount grocer, whose comparable store sales in the third quarter were up 1.2 percent, which was lower than the expected range.
“We look forward to working with our IOs across the business this year to demonstrate the meaningful impact our refresh will have for their customers and their stores,” he said.
Product assortment
The grocer has been candid about the challenges it faced with its product ordering systems following the implementation of new software, but Potter believes the end is in sight.
“By year-end, we expect IOs to have regained all order guide systems functionality that existed prior to the SAP implementation, which will allow us to shift our focus from fixing integration-related issues to driving growth,” he said.
“To build on the strength of our order guide implementation, we’re now enhancing these tools with forecasting capabilities for fresh meat and produce. We’re supporting these updates with training to help our IOs manage inventory even more efficiently.”
Potter said this holistic approach should improve operators’ ability to execute consistently and should have a strong impact on future financials.
“We believe this will be one of the most important and impactful initiatives implemented across the company,” he said. “Through enhancements we’re making to our order guide, operators will not only have better visibility of supply, but they will be better equipped to forecast and meet demand, which will improve the customer experience.
“Delivering a stronger in-store experience has been our top priority, and the results of our store refresh give us confidence in our ability to meaningfully accelerate our comp growth going forward.”
With the ordering difficulties resolving, Grocery Outlet is turning attention to its everyday product assortment, “ensuring that our stores are in stock on core basket-building items,” according to Potter.
“To address this opportunity, we defined 400 core items that all stores will carry going forward and be consistently in stock on. These items include well-known name brands like Heinz Ketchup, Daisy Sour Cream and Eggo Waffles, along with many of our private label staples that are on our customers’ regular shopping list.
“This allows customers to do more of their shopping during their trips to Grocery Outlet and ultimately make Grocery Outlet their primary shopping destination.”
Value messaging
In response to an analyst’s question on the earnings call, Potter said Grocery Outlet does price checks every week, adding that it surveyed 10 major-market MSAs the previous week.
“We remain 15-20 percent on a basket of goods lower than discount, 35-40 percent [lower than] conventional,” he said. “We have a real advantage there. No one’s going to get around us on pricing.”
A marketing kit has been created for the refreshed stores “that clearly communicates a feeling of value throughout the store,” Potter said. “This signage helps shoppers see the tremendous value they’re getting while ensuring they’re benefiting from the improved core assortments and the unique opportunistic offerings we carry.
“Greeting shoppers with great merchandising supported by strong messaging is cementing our value prop with customers that come to our stores,” he continued. “Our business offers tremendous value, and improving our marketing, our branding and communication will all contribute positively to telling our unique and differentiated story.”
The business practices Grocery Outlet is implementing may not be groundbreaking but with strong execution should yield strong results. “We’re not necessarily cutting new ground here,” Potter acknowledged. “We’re merchandising in logical ways. We’re organizing the store in ways that the customers can understand, supported with great signage.
“And the tools we’re implementing are simple and straightforward for IOs to execute at a higher level. All of that, we feel, is going to contribute to a predictable set of outcomes.
“The great thing about this business is, as we implement this in … roughly 20 stores this quarter, we can make further adjustments as we go, but the fundamentals are there.”
Bottom line
Potter summarized the company’s store strategy this way: “Our refreshed store ensures that our stores are easy to shop by merchandising categories in a logical, intuitive way with a consistent product location and assortment on shelf, while still leaving plenty of room for our opportunistic buys and treasure hunt experience. Improving the experience overall by being more consistent and easier to shop are key areas of friction that will support sustainable momentum in our comp sales.”
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