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Grocery Outlet (GO) Benefits From Innovative Retail Strategy

Grocery Outlet Holding Corp.’s GO innovative approach, characterized by its opportunistic sourcing and Independent Operator model, not only sets it apart in the competitive retail landscape but also positions it for substantial growth and customer satisfaction. By delivering exceptional value through steep discounts, and focusing on strategic expansion and customer engagement, Grocery Outlet is well-placed to continue its trajectory of success, enhancing its footprint and reinforcing its unique place in the market.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

Strategic Business Model & Market Expansion

Central to Grocery Outlet's strategy is its opportunistic sourcing model, which enables it to purchase name-brand consumables and fresh products at significant discounts. These discounts come from various situations, such as order cancellations, manufacturer overruns, packaging changes and products nearing their sell-by dates. As a result, Grocery Outlet can offer its goods at about 40% lower prices than typical grocers and roughly 20% below leading discounters.

The company is focused on expanding its market presence through a combination of diverse product assortments, targeted marketing, in-store initiatives and e-commerce partnerships. Collaborations with delivery platforms like Instacart, DoorDash and Uber Technologies for same-day delivery emphasize its dedication to customer convenience.

Further enhancing customer engagement, Grocery Outlet has introduced a personalization app and a private label program to attract bargain hunters, foster loyalty and encourage larger purchases.

Reflecting its strong market performance, the company reported a 6.3% year-over-year increase in sales in the fourth quarter of 2023. This growth was supported by a notable 2.7% rise in comparable store sales, demonstrating the attractiveness and competitive strength of the company's offerings to its customer base.

United Grocery Outlet Buyout Bodes Well

Grocery Outlet has completed its acquisition of United Grocery Outlet ("UGO"), a prominent extreme-value grocery retailer in the Southeastern United States. This acquisition is a key component of Grocery Outlet's expansion strategy, extending its presence beyond its traditional regions.

United Grocery Outlet, part of Gen Cap America, Inc. and managed by a combination of current and former UGO executives, runs a network of 40 stores and a distribution center spread across six states —Tennessee, North Carolina, Georgia, Alabama, Kentucky, and Virginia.

This move not only increases Grocery Outlet's store footprint but also signals its entry into the Southeastern U.S. market, a region previously not served by the company. With ambitions to eventually establish a national network of more than 4,000 locations, Grocery Outlet has aggressive plans for growth. By the end of 2023, the company opened 27 stores, bringing its total to 468.

The acquisition sets the stage for further expansion in the Southeast. Grocery Outlet plans to open an additional 15-20 stores in its existing markets in 2024, targeting 55-60 new stores by the year-end. Aiming to return to an annual growth rate of 10%, the company is actively seeking real estate opportunities to fuel its expansion ambitions.

Zacks Rank & Estimates

The Zacks Rank #2 (Buy) stock has gained 4% in the past three months against the industry’s decline of 4.9%.

An uptrend in the Zacks Consensus Estimate echoes the same sentiment. The Zacks Consensus Estimate for earnings per share for the current and next fiscal years has increased by 4 cents and 8 cents to $1.18 and $1.28, respectively, over the past 30 days. The Zacks Consensus Estimate for sales for the current and next fiscal years is pegged at $4.35 billion and $4.73 billion, suggesting 9.6% and 8.7% year-over-year growth, respectively.

3 Other Promising Stocks

Black Rifle Coffee Company BRCC currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for this premium coffee company’s current financial-year sales and EPS suggests growth of 12.9% and 96.3%, respectively, from the year-ago reported figures. BRCC has a trailing four-quarter earnings surprise of 406.3%, on average.

Freshpet FRPT is a pet food company. FRPT manufactures and markets natural fresh foods, refrigerated meals, and treats for dogs and cats. The company presently has a Zacks Rank #2.

The Zacks Consensus Estimate for Freshpet’s current fiscal-year sales and EPS suggests growth of 24.3% and 110%, respectively, from the year-ago reported figures. FRPT has a trailing four-quarter earnings surprise of 61.8%, on average.

Celsius Holdings CELH specializes in commercializing healthier, nutritional, functional foods, beverages and dietary supplements. The company currently carries a Zacks Rank #2.

The Zacks Consensus Estimate for Celsius Holdings’ current financial-year sales and earnings suggests growth of 41.6% each from the year-ago reported numbers. CELH has a trailing four-quarter earnings surprise of 67.4%, on average.

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