Should Grocery Outlet Join the Private Label Bandwagon?

Grocery Outlet, the closeout grocer, plans to introduce its first private label program in the third quarter of 2024, with a goal of increasing basket sizes and margins.

On the company’s first-quarter analyst call, RJ Sheedy, president and CEO, said about 100 private-label SKUs will be introduced by the end of the year. The first items to hit the stores will be in the beverage and grocery categories, followed by additional items in both of these categories as well as within the dairy, household, and baking categories.

Sheedy said he expects that private-label assortments will “become another key differentiator, providing even more value and excitement for our customers” while supporting “inventory consistency.” Many items will be priced cheaper than those they’re replacing.

Sheedy also said private-label offerings “will all be unique to us,” also supporting differentiation. He added, “Many of them will be more unique items, whether in the NOSH (natural, organic, specialty, healthy) space, different formulations, new adds to the shop that create another reason for customers to shop our stores beyond just the value that they provide.”

Finally, he said private labels will offer a “better margin” for the grocer and its independent store operators.

When initially revealing the plan during its fourth-quarter analyst call last year, Sheedy noted that the private brand will initially focus on “everyday value commodity categories” that help customers complete full shops. He added, “These items will help us capture larger baskets and create a stickier customer relationship.”

Examples of the offerings included water, baking items, pasta, and cheese.

Often described as the T.J.Maxx of supermarkets, Grocery Outlet, with nearly 500 stores, utilizes an opportunistic buying model that the chain’s pricing research from October 2023 showed offered savings of 40% compared to conventional grocer competitors. In comparison to discount retailers such as Walmart, Grocery Outlet is priced about 20% lower on average.

Grocery Outlet reported in a recent investor deck it’s a “preferred CPG partner for a non-disruptive, brand-protected sales channel” that helps liquidate excess inventory. Long-standing suppliers cited included General Mills, Kellogg’s, Campbell’s, and P&G, while emerging suppliers cited included Chobani and Newman’s Own.

A major part of Grocery Outlet’s appeal is offering a treasure hunt experience, where shoppers score deals on items being phased out. With one analyst expressing concerns about the private label’s impact, Sheedy in the Q&A session said the private label will feature a “treasure hunt component” through different methods.

“Seasonal products certainly lend themselves to that being in and out of those items as the seasons come and go,” he explained. “And then just on a regular everyday basis, we look forward to having the treasure hunt element be a part of the assortment there as well, where we are pulsing in and out of items and creating that newness and excitement within private label, the same that it exists within the branded side from an opportunistic standpoint.”

Grocery Outlet’s private label debut comes as private label sales in U.S. grocery reached an all-time high penetration of 20.7% in 2023, according to the Private Label Manufacturer’s Association. Walmart, Target, and Kroger are among those making aggressive private label expansion efforts as consumers seek out savings amid inflationary pressures, while private label-heavy ALDI recently announced a stepped-up expansion plan.