Grocery Outlet’s IPO: The Discount Context

Executive Summary

On June 10, Grocery Outlet Holding announced the pricing for its initial public offering (IPO). We look at the company’s business, its IPO and competitors in the discount grocery segment.

• Grocery Outlet, which calls itself an “extreme value” retailer, issued 17,187,500 shares of common stock at an offering price of $22 per share, garnering net proceeds of $346 million. The company said it will use the funds to repay long-term debt and has set an ambitious store expansion goal.
• Since 2015, Grocery Outlet has grown its comparable sales at an average rate of 4.2%. However, comparable-store sales growth will have been flattered by the annual 10.1% increase in store numbers: Stores take a number of years to reach maturity but they will be included in the base for comparable sales just one year after opening.
• The US grocery market remains unusually fragmented. This means strong growth at discount chains such as Grocery Outlet and Aldi does not simply represent shoppers trading down, it could also represent consolidation in the value segment.