Why Is Grocery Outlet So Cheap?

At the time of its going public in 2019, Grocery Outlet had a valuation of just over $2 billion, which has only increased. Its claim to fame is one the best places to get bargain deals for most of the stuff you need at home. It is not just groceries, which it does as the name suggests, but general merchandise, including housewares, toys, alcohol, meats, and anything they can get their hands on at a bargain. 


The bargain deals are on the extreme end that it is surprising and explains why even in the pandemic, the retailer has seen growth in its share value. According to Marketwatch, products at Grocery Outlet can have prices set 70% lower than competing stores, like Aldi. 


A whole basket of products at Grocery Outlet could be 40% lower than elsewhere. The retailer even outdoes discount stores by having prices up to 20% lower. So why is Grocery Outlet so cheap? How do they achieve their low prices? Well, it turns out there is no big secret, just a couple of shrewd decisions. Grocery Outlet can keep its prices low primarily because of the following reasons;


Why Is Grocery Outlet So Cheap?


Below are the reasons why Grocery Outlet is so cheap, and how they are able to offer bargain deals and keep their prices so low:

  • Well Sourced Products
  • Strategic Pricing
  • Small Inventory
  • High Demand Private Label Goods


Now I will dive into how Grocery Outlet utilizes these strategies to keep their prices so cheap.


1. Grocery Outlet Sources Their Products Well


The core reason is where Grocery Outlet gets its products. First, it is not from other stores but straight from manufacturers, and on top of that, it targets excess inventory from manufacturers. These are products that result from manufacturing overruns or packaging changes; thus, they cannot sell them with the rest, or the usual supply chain is full. 


The manufacturer is desperate to release them and therefore sells them way below wholesale prices, and the massive cost savings are passed on to you. Grocery Outlet calls this opportunistic sourcing. The fact that they source their products directly from manufacturers and not other stores also makes the deal sweeter. 


2. Grocery Outlet Uses Strategic Pricing


Even with the first strategy, the outlet could still set high prices or at least close to the discount stores. However, it appears the marketing strategy is to be the cheapest shopping point in town. This explains why even items that cannot be opportunistically sourced, like meat, milk, and eggs, have lower prices than similar items at competing stores. The idea is to give the customer the chance to shop all essential items at one place and the lowest prices in the area. 


3. They Keep A Relatively Small Inventory 


Grocery Outlet also has a smaller inventory compared to conventional supermarkets. You will not find sections like in-house butcher sections and in-house bakeries. It lessens their general costs and allows them to only stock items they can get and sell at high discounts. 


4. They Have High Demand Products & Private Label Goods 


The way General Outlet operates is to maximize the local demand where the stores are located. A local family usually runs these stores, so they understand the market better. They do not stock their outlets uniformly in all regions; only those the local market buys a lot. As such, there is no wasted or idle capital tied in products staying long on the shelves. 


Further, the store accepts private label items and, by sourcing globally, even gets goods from brands that may not be household names, thus more willing to offer greater discounts to break into the market.