Store Count by State
Source: Company Reports, as of Jan. 2, 2021
Not For Everyone
A familiar narrative in the grocery industry has long centered on three key areas; it’s an intensely competitive industry with low margins, where scale is essential. The industry is challenging enough that it’s hard for multibillion-dollar retailers to compete with one another. Why, then, would someone want to become an owner-operator of a food retailing concept with the word “outlet” as part of its brand identity, and how many people would find that opportunity appealing?
Plenty, is the short answer. Grocery Outlet shares with investors that it fields 20,000 inquiries annually from people interested in becoming an IO. According to Lindberg, the number is actually higher than that, because during the pandemic, the company began fielding more inquiries from outside of the grocery industry. However, the big number at the top of the funnel number gets whittled down quickly as people go through a self-assessment to determine whether they have the right mindset to be successful in the grocery business and as part of the Grocery Outlet system.
“It takes two things to be successful in Grocery Outlet,” Lindberg explains. “One is the mindset of being an entrepreneur, waking up every day and chasing a dream, working hard, with no one really telling you what to do. The other is the skillset. We can teach the skillset, but we cannot teach the mindset. I would take mindset 10 to one over the skillset.”
To make that determination, aspiring IOs go through a 40- to 60-hour assessment. They spend time in stores, where they’re encouraged to grill other independent operators about the pros and cons of the company and its approach. The process is designed to make sure that aspiring owners are entering into a potentially lifelong commitment with their eyes wide open.
“We want people who are willing to put in the sweat equity and live and work the model,” Lindberg says. “We don’t want to have a partner in the system that is wrong. We have a big responsibility to make sure people know what they are getting into. We are only looking for 15 or 20 people a month, so there are more than enough out there [for us to] be very, very selective."
- An Aversion to E-Commerce
Most grocers saw explosive growth of e-commerce during the past year, but not Emeryville, Calif.-based Grocery Outlet.
“It is still not part of our strategy,” says Eric Lindberg, the company’s CEO. “We watch it. We stay close to it. We spend time talking to some of the partners out there. Could we turn it on? Yes.”
The prospect of doing so isn’t appealing to Grocery Outlet, however, because of the added cost. Digital grocery is currently heavily subsidized, and larger retailers are able to look the other way on profits, according to Lindberg, who maintains that the magic of off-price retail and the treasurehunt sense of discovery is in the brick-and-mortar store.
“Right now, our customers today are not telling us they are willing to substitute the value they get for the delivery of the product,” he notes. “We think we’ve got a lot of growth without having to go to the complexity of the e-commerce world.”