June 18, 2019 | 11:46 AM by Jay Kunstman | jkunstman@jaguaranalytics.com

IPO Watch – Grocery Outlet Holding (GO)

Founded in San Francisco in 1946, founder James Read would open the doors to his first military surplus store named Cannery Sales. Ultimately, the company was renamed to Grocery Outlet in 1987 and this week, the company is scheduled to begin trading on the NASDAQ.

With just over 300 locations, Grocery Outlet Holding is a value retailer of quality, name-brand consumables and fresh products sold through a network of independently operated (IO) stores.

Grocery Outlet states that each of their stores offers a fun, treasure hunt shopping experience in an easy-to-navigate, small-box format. An ever-changing assortment of “WOW!” deals, complemented by everyday staple products, generates customer excitement and encourages frequent visits from bargain-minded shoppers.

According to their S-1 filing, they source quality, name-brand consumables and fresh products opportunistically through a large, centralized purchasing team that leverages long-standing and actively managed supplier relationships to acquire merchandise at significant discounts. Their stores are independently operated by entrepreneurial small business owners who have a relentless focus on selecting the best products for their communities, providing personalized customer service and driving improved store performance. Unlike a store manager of a traditional retailer, IOs are independent businesses and are responsible for store operations, including ordering, merchandising and managing inventory, marketing locally and directly hiring, training and employing their store workers.

The company noted that customers visited their stores over 85 million times in 2018 with the average customer shopping twice per month and spending over $25 per transaction. In addition, stores have performed well across all economic cycles, as demonstrated by their 15 consecutive years of positive comparable store sales growth and consistent gross margins of between 30.1% and 30.8% since 2010. “In fact, our value proposition attracts even more customers in periods of economic uncertainty as evidenced by our average 13.5% comparable store sales growth during the recessionary economic conditions experienced in 2008 and 2009.”

Growth Strategies

Moving forward, the company has highlighted the following growth strategies:

• Intend to drive incremental traffic and increase share of wallet by further leveraging its purchasing model. “We believe there is a significant opportunity to source and offer more “WOW!” deals within existing and new product categories, thereby offering greater value and variety to customers.”

• Continue to implement operational initiatives to support IOs in enhancing the customer experience. “Our recently enhanced inventory planning tools help IOs make better local assortment decisions while reducing out-of-stock items and losses related to product markdowns, throwaways and theft (“shrink”).”

• In regards to marketing, its recent emphasis on digital marketing is enabling them to deliver specific and real-time information to customers about the most compelling “WOW!” deals at their local store. “We have over one million email subscribers in our database, most of whom receive daily and weekly “WOW! Alerts.”

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