As part of the Goldman Sachs Global Retailing Conference this week, Eric Lindberg, CEO of the fast-growing extreme discounter Grocery Outlet, participated in an online discussion with analyst Katharine McShane, sharing perspectives on the mindset of the value shopper, the competitive landscape, technology and e-commerce. What follows are five takeaways from a Sentieo transcript.
1. Restaurants Might Be Struggling Anyway
Asked about the sudden shift of meals consumed at home that came with pandemic-related restrictions, Lindberg expressed respect for the ingenuity of cross-channel counterparts in the restaurant space to rebuild but suggested the possibility that food away from home might have been due for a correction anyway.
“I would never count out entrepreneurs who are fighting for their business survival. I’ve been really impressed and cheered on a lot of the entrepreneurs who have figured out how to eat outdoors, and how to do delivery and pickup curbside and get very accretive with marketing. I think that’s a testament to how strong the entrepreneur behind a lot of those businesses is. That said, I think pre-COVID, we might have all surveyed our own opinions on how expensive it had become to eat out, and we were seeing the trends of eating-at-home before COVID because it’s so expensive, particularly with a family, which a lot of our customers are to go out and eat a proper meal.”
Lindberg said he anticipated consumers would seek out restaurants as they reopen primarily to “break the monotony of cooking at home and get outside,” but noted some analysts believe it could be years before restaurants can retain the strength that not long ago, had them splitting total U.S. spending on food nearly equally with their retail rivals.
2. A Cautious Approach to E-Commerce
Despite a boom in grocery e-commerce, Grocery Outlet has taken a cautious posture, citing both troublesome economics of the model and a unique inventory and in-store shopping experience he feels would be difficult to replicate virtually. “We start from the place that it’s not economical for anyone doing it,” Lindberg said. “There are some very, very large businesses out there where they allow the margin to be eroded because it’s good for the overall business for the omnichannel of that retailer, but the activity of delivering groceries to one’s home is not a profitable endeavor I’m not sure it ever will be.”
That said, Lindberg said the retailer is open to further exploration of fulfillment strategies easier on the bottom line, such as pickup, or outsourcing to Instacart, that could be pursued by some independent operators.
“We haven’t jumped into it headlong. We’ve tested and trialed things with operators who have sort of an entrepreneurial bent and want to try things on their own. ... Fundamentally, it’s very difficult for us to replicate the ‘Wow’ shopping experience that we have in-store, the treasure hunt and the shopping of sort of this [inventory] discontinuity online. [It’s] pretty hard to replicate.”
3. Let the Games Begin
Grocery Outlet is bullish on digital marketing—primarily through an email its shoppers opt into, currently—but is kicking around ideas for further development of a mobile app or other means to take advantage of an internal company effort to track its varying inventory and selection by store, and to reinforce a saving message to its shoppers.
“We know that our customers love games. So there’s a way of sort of gamifying the shop,” Lindberg said, adding that the “biggest idea” would be to give customers “the ability to see a few select deals that are coming and going in scarce supply and be able to do that on a device that they interact with. … We think that will be really successful.”
Showing shoppers what they saved—or as Lindberg explained, “reminding the customer every time you save $35, you shopped and spent $22”—is “pretty powerful,” he added. More details on the company’s digital strategy game are to come.
4. Going to School on Innovative Retailers
“Part of our development along the last 20 years has been to knock on different businesses’ [doors] along the way, and understand something about what they do,” Lindberg relayed when asked about other management teams he admires. These include fast-food rivals like In-N-Out Burger (for their hiring and training) and Chick-fil-A (for its franchise model).
“We’ve gone back and spent some time with a convenience-store operator in Pennsylvania—one of the two most celebrated private companies—just to understand the way they build food that is different than what they could just buy through a wholesaler,” he added, in apparent reference to Wawa (or perhaps, its Western Pennsylvania neighbor and rival, Sheetz).
“We’re curious people and along the way, it doesn’t have to be a grocery model,” he added. “It can be just something that’s in the consumer’s mindset that’s really impressive, and we make a habit every year picking one or two of these businesses to go a little deep with and try and learn something that we can apply to our business.”
5. Value Is a Mindset, Not a Demographic
Not unlike Aldi, revamping of its selections behind what it calls NOSH (Natural, Organic, Specialty Healthy) a decade ago demonstrated to Grocery Outlet it could expand the discount shopper base beyond those who use the store as a budget necessity.
“Our customer is the value mindset customer. I think it doesn’t always have to be a demographic—it can be a psychographic,” Lindberg noted, saying the disruption associated with the COVID outbreak is introducing new and pleasantly surprised customers, with some becoming new primary shoppers.
“I think you have to think about it this way: We’re going to focus and deliver value. And so if you have a value mindset, Grocery Outlet is a great place. If you live in our market, that’s what you hear, whether it’s on social media or in print or in TV or in radio, we're very consistent with delivering that message.”