GO - Grocery Outlet

[Broeb22]

Grocery Outlet is a decent company that I've been interested in for a while but has always been too expensive. I believe that is changing (for now).

 

S/O: 99 million

Price:$35

Mkt Cap: $3.47 billion

Cash: $105 million

Debt: $449 million

EV:$3.81 billion

 

They are an off-price grocery store operator with an interesting franchisor-like operating model and a centralized supply chain that has responsibility for finding interesting clear-out deals in a way that sounds similar to how TJ Maxx and others in the off-price apparel market operate. These "WOW!" deals as they call them act as a supplement to the more consistent grocery inventory that they bring in to provide a full selection of food. They are only regionally penetrated on the West Coast as well as the Mid-Atlantic with 380 stores. They expect they can grow to 1,800 stores in existing and adjacent markets.

 

Their growth plan includes single-digit comps and a 10% store growth plan that can continue for another 15 years if their foot print estimate is correct. I think their offering is likely to be popular in many locations and that there is not a good reason why the store base cannot be national. 

 

Does anyone else have any color on the name? I'm just starting to dig in.

[peridotcapital]

I like the business model and enjoy picking up bargains there. I just can't get past the valuation, which seems quite excessive (24x 2020 EBITDA). I get the 10% unit growth potential, but how is this worth more than 10-15x EBITDA? The IPO price of $22 back in 2019 seems about right to me...

[Broeb22]

I like the business model and enjoy picking up bargains there. I just can't get past the valuation, which seems quite excessive (24x 2020 EBITDA). I get the 10% unit growth potential, but how is this worth more than 10-15x EBITDA? The IPO price of $22 back in 2019 seems about right to me...

 

I'd agree that the valuation is a little rich, which I think could be 28x 2021 earnings. That's not a horrible price to pay if you truly believe they have a decade+ of growth. I'm really posting here to get some color from anyone who has any experience with the concept, since I don't live on the West Coast or in PA.

[Spekulatius]

No opinion on the stock. I have been to a grocery outlet a few times years ago when I lived in CA. In my opinion, Aldi beats the pants of this store concept from a customer perspective. No position, but I would rather own some expensive COST stock or DG.

[oldye]

Paying more than 1x sales for an old school discount retailer?  ::)

 

 

They use an operator owner model, management gets a 10% stake in the store's revenue in exchange for providing/paying the labor and taking care of overhead. Usually its a husband/wife team that works crazy hours. Corporate provides all the inventory and covers the rent. 

 

https://thegrocerystoreguy.com/is-the-grocery-outlet-independent-operator-program-a-good-deal/#:~:text=As%20the%20owner-operator%2C%20you,a%20cut%20on%20every%20side.&text=And%20ultimately%20it's%20their%20name,of%20the%20independent%20owner-operators.

 

They carry most of the same standard brands found in most supermarkets  and in addition they also offer close out deals they buy directly from manufacturers or distributors.

 

 

 

  If you are looking for a deal on some older wine, you might find some great bargains at GO.  There is a bit of the treasure hunt atmosphere and if you enjoy shopping you might like their stores.  Totally anecdotal but a couple of years ago, we were looking to buy some canned goods to donate to charity and did not find any extra ordinary values. 

 

 

They just opened a new location a few blocks from me in an old Walgreens locations across the street from Albertsons.  The Walgreens closed about a year ago because business was slow..Many of their other locations in Socal are old Fresh and Easy locations that also failed because business was slow. Sure they're growing same store sales 7% YOY during a pandemic.. but how much of that was one time hoarding?

 

I don't shop there so I can't really give any insight into how popular they are, but I think the entire grocery business is changing quickly and permanently.

 

You have to remember that they are competing directly with Aldi (similar store atmosphere.. few employees, dim lighting) who last I read is/was opening 2,000 stores in the west, 99 cent store, Dollar Stores, Trader Joes, Safeway, Kroger,  Target, Amazon, Costco, Sprouts, Smart and Final, Stater Bros, Wholefoods, Walmart and a bunch of regional and ethnic stores that make up a majority of grocery sales in Socal. 

 

My biggest question - Why would anyone bother to go shopping inside a store when they can order anything they want delivered to their door from Walmart or Amazon without paying too much more?  The only answer I've heard is that some people just need to get out of the house and they like to touch  the fruit/vegies before they buy them.     

 

Our online shopping is probably up 700% over the past 12 months, with probably 95% of our grocery spend shifting to online, with no plans to go back.  It is just way too convenient, the fruits and vegies from Walmart mostly suck, so we get those delivered from Wholefoods/Amazon.  We are about to renew our Walmart membership, it saves me at least an hour per week plus wear and tear on the car.

 

I wouldn't bet much on any retailer that isn't figuring out how the hell they can compete with online delivery memberships.  I think Costco fell asleep at the wheel because Amazon and Walmart are about to each their lunch if they don't figure this out fast. 

Relying on Instacart and upcharging 15% on each item completely defeats the purpose of their business model when  I can pay $2 per week + tip and get the same stuff delivered at a similar price. Forgot to order something? Walmart offers free next day shipping on dry goods like cereal.  I can't imagine anyone going back to the stores once they get used to this.

 

I thought curbside pick up was addicting..these guys aren't even doing that. Costco is barely just testing that out... 

 

 

 

 

 

 

 

[Broeb22]

Thanks for the detailed response oldye.