Why the 'TJMaxx of groceries' is succeeding during the coronavirus pandemic
Posted March 26, 2020 10:19 a.m. EDT
CNN — The coronavirus is crippling most American industries. But it's also creating opportunities for some unexpected businesses.
Grocery Outlet, an "extreme value" supermarket chain with around 350 stores, mostly on the American West Coast, is capitalizing on shoppers stockpiling groceries during the outbreak and the havoc across supply chains.
The grocer, which does not sell online, went public last year and sells its products 40% below conventional supermarket prices. It said Tuesday that sales at stores open for at least one year increased 5.1% during its most recent quarter. Like other grocers and retailers that have stayed open during this crisis, Grocery Outlet's sales accelerated in March as the virus spread across the country. The company also drew new customers to stores.
Grocery Outlet "will be able to turn many of these new shoppers into repeat shoppers," Oliver Chen, analyst at Cowen, said in a research report.
Grocery Outlet's business model is a lot like TJX, the parent company of TJMaxx and Marshalls, and Ollie's Bargain Outlet. This may put it in a strong position to succeed during the crisis and beyond, analysts say.
The company relies on an "opportunistic buying" strategy to secure items from suppliers, many of whom are the country's top consumer product and food manufacturers.
When a grocery, convenience or drug store cancels an order from manufacturers, a manufacturer produces too much of an item, or a supplier changes product packaging, Grocery Outlet's buyers step in to scoop up the extra inventory.
"Our buying strategy is deliberately flexible to allow us to react to constantly changing opportunities," the company says in filings.
During the coronavirus pandemic, producers are ramping up their supply to meet overwhelming demand. Food and consumer product manufacturers are also changing up their production lines and packaging to get shipments out more quickly.
There's a huge amount of supply chain disruption going around right now, and this imbalance between supply and demand is a positive for Grocery Outlet's business,
"Disruption is a positive in the long run," Grocery Outlet President RJ Sheedy told analysts Tuesday.
"Non-traditional suppliers" have recently approached Grocery Outlet, such as food service companies who don't have restaurants to sell to during the crisis, health and nutrition companies that don't have as many gyms open, and suppliers that sell to retailers that have closed.
The company predicts that there will be excess inventory in the market once demand returns to normal.
"This should create opportunity for us long-term to continue to buy great brands at significant discounts," Sheedy said in a statement to CNN Business.
Discount clothing companies like TJMaxx may benefit from similar dislocation in the market, too.
Traditionally, when there is a glut of clothing available, these chains have more options to step in and scoop it up at lower prices to sell at their stores.
"We also expect ample product availability in the wake of COVID-19," RBC Capital Markets analyst Kate Fitzsimons said in a research note upgrading TJX's stock this week.