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Grocery Outlet CEO: What we offer is 'best experienced by the customer in-store'

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Grocery Outlet CEO Eric Lindberg joins Zack Guzman to discuss how the grocery chain is faring and what customers are buying amid the coronavirus pandemic.

Video Transcript

ZACK GUZMAN: 2020 has seen some pretty drastic shifts in the way that Americans are out eating. Of course, restaurants and indoor dining had shut down in a lot of areas of this country. We saw a big boost for traffic to grocery stores, and no doubt, that story playing out for our next guest here. And Grocery Outlet, dubbed the TJ Maxx of grocery stores-- Grocery Outlet offers a flexible model here to get prices out there, generally about 40% to 70% below those of conventional retailers, according to the company. And we've seen shares there up by about 30% on the year.

So what's going on here at Grocery Outlet? Here to discuss that with us is Eric Lindberg, Grocery Outlet CEO. And Eric, pretty interesting numbers you guys reported in the last quarter. And you look at same store growth doubling-- more than doubling; don't want to take anything away from you-- versus last year up 16.7%, which is a 5.8% increase we saw in Q2 in 2019.

So what do you attribute that to? I mean, obviously, across the board, grocery traffic's up. But what are you guys doing differently to get shoppers into your stores?

ERIC LINDBERG: Yeah. Hey, Zack, thanks for having us on. I would say, look, we've been fairly boring in that we've been very execution-based. We do a few things and do them really well. We find great deals for customers. And we do it across the board on, you know, national brands, small brands, regional brands, all in the consumable and the fresh space.

And we've just relentlessly pushed away at that for years. And I think what happened-- people went to search for other places to find supplies that were short, and they found Grocery Outlet. And I think they've stayed. So it's been a pretty frenetic growth pace since about March 15, and it's held on pretty well.

ZACK GUZMAN: People have talked about, in this uncertain economic time-- we've seen this in prior recessions, the idea of maybe bargain shopping and how that grows during times like these. I mean, you guys topped even the highest expectations out there for analysts in the second quarter. Do you see that trend continuing, when we think about more people maybe being more conscious of price going into your stores, maybe for one or two items, and then replacing other trips to outside stores? I mean, how are you thinking about targeting that value shopper right now?

ERIC LINDBERG: Yeah, look, I think we saw it in '08. '09-- there was a deep reset to value coming out of the last recession. And I think we could be in store for something similar to that as people think about their highest expenditures in their household-- you know, housing, food are up there, probably one and two. And so as people look for value and where they're gonna spend money, where they're going to save money, I think they think about what's their personal budget for food away from home and in home? And we represent at least half of that-- if not probably 60% or 70% today. And we offer that 40% savings to 70% savings.

So people can really come in the store and use it as an effective tool against their home budget. And so we are reaching out to those customers through social media. We're an old-fashioned sort of brick and mortar retail. We don't do a lot online.

And we have a lot of stores that are very convenient to get into. They're run by community, you know, families, and people are finding them.

ZACK GUZMAN: Yeah, that was gonna be my next question, because we've seen that shift really intensify here, particularly in the grocery space, when we think about either curbside pickup or full delivery. You said on your earnings call that the strong performance in the first half of the year was setting you up to invest in the business. And I know you've been opening a lot more stores this year.

But beyond that, what other initiatives are you looking at? Is curbside pickup maybe a little bit easier for you guys to roll out than delivery? Is that something on the docket?

ERIC LINDBERG: Yeah, so look, I would say it like this. We are really focused on delivering value to the customer. The customer's not asking us for anything online. They represent-- or they recognize that, I think, value goes away if I start to deliver to their home.

We think, potentially, you could do buy online, pick up in store-- BOPUS. You could do curbside. We had a few stores playing around with it.

I wouldn't say never, but I would say that the treasure hunt model that we have, the opportunistic product, the variability of what we offer store to store, is really best experienced by the customer in store. And so for now, that's gonna be the model for us-- just to double down on value, really make sure we're providing that value in-store.

ZACK GUZMAN: And if you're leading with that, I mean, this treasure hunt kind of model, as you guys call it, and trying to find those bargains out there-- I could see why that might be something that's a little bit, A, less fun online, or B, harder to actually institute. But when you think about that, I mean, how does that shift as you guys work with more suppliers and grow your scale? How does that help you, obviously, improve your guys' metrics moving forward in the back half of the year?

ERIC LINDBERG: Yeah, I would say-- you know, the larger you get, I think the more readily you're able to address the supplier's needs. You're offering more points of distribution. You're offering more customers. You're offering, you know, essentially a faster turn for them.

Essentially, we're talking about 1% of the CPG product in the US has to go through a channel like ours, a secondary channel. And so the faster we can turn products, the more responsive we can be, the better a partner we can be to them. The trend has been, in the last few years, away from the national brands, into regional brands, smaller brands, you know, brands you might find that are more natural, organic, especially healthy.

And so we've launched an effort called NSA, New Supplier Acquisition. We've got a team of people going out, you know, looking for new relationships and new solutions for them. So it's amazing, when you shop the store, what you see in terms of brands and values and the customers responding to it. And they love the variability. They love that it's, you know, a little bit more like a treasure hunt. There are wows down every aisle and every corner of the store. So it's really a compelling shopping environment.

ZACK GUZMAN: Got a very interesting change in the dynamic here, as you highlighted there, in terms of the value shopper becoming even more important. We've seen it before. We're seeing it again. But Eric Lindberg, Grocery Outlet CEO, thanks again for the chat.

ERIC LINDBERG: You bet. Thanks, Zack. Take care.