Dive Brief:

• Grocery Outlet posted $768.9 million in net sales during the third quarter, a 0.6% year-over-year increase, the discount food retailer announced on Tuesday.
• The company's identical store sales decreased 4.3% during the period, up from a 10% decrease during the second quarter but still lower than the 9.1% increase in Q3 2020. Net income dropped 57.7% to $17.1 million in Q3. 
• To boost engagement with shoppers, Grocery Outlet is strategically expanding its assortment and planning to test a mobile app next year, company executives said during an earnings call Tuesday.

Dive Insight:

After booming sales last year during the pandemic, Grocery Outlet seems to be missing out on the return of in-store shoppers and stock-up trips.  

“While third-quarter traffic and basket size were stable relative to Q2, our comp sales decline versus last year was the result of lower traffic,” Chief Financial Officer Charles Bracher told investors on the earnings call. 

Grocery Outlet has long honed in on scoring sharp discounts from suppliers and offering customers a “treasure hunt” of low-priced items. But as grocers navigate new shopper behavior that often mixes in-store and e-commerce shopping, the discount chain is beginning to take steps to connect with customers online. 

Grocery Outlet is planning to test a mobile app beginning in the first half of 2022. “We are excited about the potential of this effort as we believe the capability to communicate new products and great values based on individual preferences will positively impact the customer experience,” CEO Eric Lindberg said.

While executives noted it was still too early to speak about how its new six-month pilot with Instacart is going, Lindberg said the grocer is looking to attract both existing and new customers through the e-commerce offerings. 

As part of its efforts to get customers back in stores, Grocery Outlet is expanding its assortment of local, fresh and ethnic products that the grocer expects to help boost trip frequency, President RJ Sheedy said. The initiative is underway, with the grocer recently adding 200 SKUs, Sheedy said. 

“Our customers have responded favorably to similar strategic product expansions in the past,” Sheedy said. “So we remain optimistic about the longer-term benefits of this initiative.”

Executives said Grocery Outlet is also working on personalized customer marketing tools.

In a note to investors last week, Karen Short of Barclays said despite valuation concerns, she expects to see Grocery Outlet recapture market share in the intermediate-term.

"[W]e believe the typical GO customer has not needed GO during the pandemic, so while the company has clearly lost share during the pandemic, we believe this dynamic will reverse in 2022, with value-oriented shopping (especially for low-income consumers) becoming more relevant again," the note said. 

For the fourth quarter, Grocery Outlet is forecasting comp sales to fall between 2.5% and 3.5%. Lindberg told investors that inflation hurts customers’ wallets, but doesn’t impact Grocery Outlet’s business as much as the industry overall because of its assortment and pricing dynamics. 

“We think there will increasingly be a real need to save even more money not just because of inflation, but also when you consider the stimulus has ended, unemployment benefits have ended ... and so we think that ultimately turns in our favor,” Lindberg said.