The Future Is Bright For Grocery Outlet: Analyst On Square Footage Growth And Digital Marketing As Key To Market Share Gains

Telsey Advisory Group analyst Joseph Feldman reiterated an Outperform rating on the shares of Grocery Outlet Holding Corp GO with the same price target of $40.

In the near term, the business should remain solid (3Q23 comp guidance of ~6.5%), driven by solid traffic, as consumers continue to spend on basics and search for value and deals in an uncertain macro environment, said the analyst.

The analyst noted that the sourcing environment remains healthy given the demand-supply imbalance and ongoing product innovation, combined with the company’s growing partnership with existing and new vendors.

Grocery Outlet is also leveraging technology via its recently launched mobile app, partnership with delivery providers and new IT platform for independent operators, helping to gain new customers and increase productivity, observed the analyst.

The analyst sees that the company continues to differentiate itself by offering deeply discounted prices on branded products with attempts to be lower than Walmart Inc WMT by ~20% and traditional grocers by ~40%.

The company reiterated its plan to open 25-28 net new stores, equating to unit growth of 5.7%-6.3%, to total 466-469 stores in 2023.

Beyond 2023, Grocery Outlet remains focused on square footage growth (~10% annually), opportunistic sourcing, in-store enhancements, and digital targeted marketing, which should help fuel market share gains, said the analyst.

Since the company is at the crossroads of two attractive sectors, namely defensive food and consumables and value-focused closeout items, it should continue to attract customers with deep discounts on branded groceries, noted the analyst.

Grocery Outlet’s unique model combines entrepreneurship and local decision-making, with purchasing at scale and leverage of corporate resources, to create a successful small business at scale model, concluded the analyst.

Price Action: GO shares are trading higher by 0.12% at $30.05 on the last check Friday.