In a significant move reflecting the changing dynamics of the retail grocery sector, Grocery Outlet Holding Corp. has announced the cancellation of 23 store leases for locations deemed suboptimal.
This decision involves 15 stores originally slated to open in 2025 and eight planned for 2026.
The retailer has also announced a slew of layoffs amid the lease dump.
The announcement comes as part of a broader restructuring strategy initiated in the fourth quarter of 2024, detailed in a recent Securities and Exchange Commission Form 8-K report filed on February 25.
Strategic shift in operations
Emeryville, California-based Grocery Outlet is pivoting its focus towards optimizing its operational footprint.
The company has decided to terminate several capital-intensive warehouse projects and instead allocate resources to lower-cost distribution centers specifically for dry goods.
This strategic shift aims to enhance efficiency and reduce overhead costs, aligning with the company’s long-term objectives.
In conjunction with these changes, Grocery Outlet has also made the difficult decision to lay off 40 employees in the first quarter of 2025.
This restructuring is expected to streamline operations and better position the company for future growth.
Financial impact and future plans
Grocery Outlet anticipates that the restructuring efforts will incur total costs ranging from $52 million to $61 million, with cash expenditures estimated between $36 million and $45 million.
The company aims to complete these measures by the end of the first half of 2025.
Despite the setbacks, Grocery Outlet remains committed to expansion.
Chairman Eric Lindberg stated during the company’s fourth-quarter earnings call that they plan to open 33 to 35 new stores in 2025.
This figure marks a notable reduction from the previously projected 55 to 60 openings, representing a decrease of 17 to 20 stores.
This recalibration underscores the company’s focus on quality over quantity as it navigates the current retail landscape.
Strong fourth quarter performance
Interestingly, Grocery Outlet’s performance in the fourth quarter of 2024 exceeded market expectations.
The grocery chain reported a remarkable 10.9% increase in net sales, reaching $1.1 billion for the quarter ending December 28, 2024.
Additionally, comparable store sales rose by 2.7%.
Lindberg expressed optimism about the results, stating, “We delivered solid fourth-quarter results, generating comps above expectations as customers responded to our improved value assortments.”
This performance highlights Grocery Outlet’s ability to adapt and thrive despite the challenges posed by the retail environment.
The chain currently operates 533 stores across 16 states, with 42 company-owned locations and 491 stores managed by independent operators.
A new chapter for Grocery Outlet
As Grocery Outlet navigates this restructuring phase, the company’s decisions reflect a strategic focus on long-term sustainability and operational efficiency.
By canceling suboptimal leases and prioritizing lower-cost distribution solutions, Grocery Outlet aims to position itself for continued growth in the competitive grocery market.
With plans to open a new range of stores and a strong performance in the previous quarter, Grocery Outlet is set to embark on a transformative journey that could redefine its place in the retail sector.
As the grocery landscape evolves, the decisions made today will shape the future of this beloved discount grocery chain.
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