I have a good friend that just became an owner of a store with Grocery Outlet. As I heard him tell me about his experience, I began to wonder is the grocery outlet independent operator program a good deal?
Here’s what I learned about getting started with Grocery Outlet as an owner-operator:
You need a minimum of $25,000, but be prepared to invest up to $200,000 total, the bulk of which the company will finance. A lower initial training salary, an unwritten policy to franchise mostly to married couples, and possible relocation mean this isn’t for everyone. But some operators make up to $300k per year.
But there’s a lot more to know about the Grocery Outlet chain and how they structure their store ownership and whether it’s a good deal.
So we’ll get into whether it’s a franchise in the traditional sense. But we’ll also look at how much owner-operators get paid and how much it costs to buy into the company.
So let’s dive in!
Who is Grocery Outlet?
Why Grocery Outlet Is Thriving as Other Grocers Are Struggling https://t.co/jWlqq0OypP
— Barron’s (@barronsonline) August 16, 2019
If you don’t know Grocery Outlet Bargain Market, they are a nationwide chain of bargain grocery stores.
They are a full-stop shop, meaning they carry all main types of grocery store items including produce, meat, and seafood. However, they focus on close-out items, short-dated items, and other low-priced items with prices that are often up to 60% lower than other grocery stores.
They were founded in 1946. They’re also a publically traded company and currently have well over 300 stores in the US.
Unlike a Wal-Mart or other chain, Grocery Outlet’s offerings often change from month to month depending on what items are available. So only about 20% of the merchandise are items you’ll find every single visit.
Also unlike conventional grocery stores, or even places like Whole Foods Market where I worked for 2+ decades, Grocery Outlet stores are independently owned and operated in what looks like a franchise arrangement.
If you’ve never been in a Grocery Outlet, they are a little smaller than a conventional grocery store (anywhere from 10,000-15,000 square feet). And they might have anywhere from 15-30 employees, which is also smaller than most conventional grocery stores.
The average Grocery Outlet Bargain Market does $130,000 per week in sales. By comparison, the stores I ran for Whole Foods Market did anywhere from $400,000/week to over a million a week.
But given Grocery Outlet’s focus on low-priced bargain items, and often being positioned in low-income neighborhoods, the lower sales model isn’t surprising.
What is the Grocery Outlet Independent Operator Program?
Rather than simply hiring store managers like most grocery stores, Grocery Outlet prefers to find what they call independent owner-operators, the vast majority of which are married couples.
While my friend who is an owner-operator is a solo operator, they almost exclusively hire couples feeling like their business model works best with 2 people in the lead. Given my friend just took his first 3 days off in 8 months, I can understand the benefit of sharing the workload!
As an independent operator, you control the employees and the possible HR headaches.
So in that sense, it’s a great deal for Grocery Outlet. After all, most grocery stores spend a lot of time and money on an HR team, unemployment hearings, and processes, as well as mediating conflicts between employees or between employees and managers.
How much does it cost to become an Independent Operator at Grocery Outlet?
As an independent owner-operator, you buy into the company, typically somewhere in the $200,000 range.
The good news and bad news is that you can finance most of this initial investment through Grocery Outlet. That means you’re beholden to them for a quite a while as you pay that back.
Do plan to have a minimum of $25,000 to invest though.
They are kind enough to not require interest payments below a certain sales volume. BUT that interest is still accruing in your account, meaning you will eventually have to pay it back.
As an owner-operator, while you are 100% responsible for the employees, you still have to buy from Grocery Outlet warehouses and approved product vendors (so they get a cut on the front end and the back end).
You also can’t stray too far from their overall business model.
They call the process “shared risk” with the owner-operator buying most of the equipment in the store (from refrigerated cases to grocery carts, to cash registers, to forklifts). Even if an owner-operator is buying an existing store, these expenses still have to be purchased from the company or the previous owner-operators.
For brand new stores there is also an additional expense of training the employees. That cost too falls to the owner-operator and can run upwards of $70,000.
From a purchasing standpoint, the good news is the owner-operator does not pay for merchandise until it sells so that at least helps keep weekly cash-on-hand needs on the lower side.
What is the Grocery Outlet operator agreement?
The original agreement founder Jim Read had for his owner-operators was written down on a napkin. That was for the first owner-operator, Leonard Downs.
But the company has grown quite a bit since then. Being publically traded now, the company also is under a lot more scrutiny and legal eyes. So it’s not surprising the agreement has become very formal.
First, you have to qualify. After all, they don’t just give these stores to anyone.
They require their owner-operators to have “five years of retail management experience, as well as proven marketing and community skills, merchandising skills, hiring, teaching and coaching skills, and financial and business skills and meet additional financial and background qualifications.”
Then, once you qualify, you’ll be in a training position (what they call their “aspiring operators in training” or “AOT” program) for about 6 months at one or more of their existing stores working with a seasoned owner-operator learning all the processes you’ll need to know to run your own store.
The training program may or may not be in a store in your area, so understand it could mean temporarily relocating.
The typical candidates to be an owner-operator with Grocery Outlet is going to be a married couple who have both worked as store managers for a large retailer. That could be Wal-Mart, Target, or a grocery store.
They are most likely going to be middle-aged. Maybe hit the salary cap at their current employer, or maybe even been laid off. So they are looking for an outside the box opportunity since starting over with another retailer would often mean a much lower salary.
You can read greater detail on the independent owner-operator program on Grocery Outlet’s website.
Is Grocery Outlet a franchise?
Yes is the short answer.
By definition, a franchise is simply a business opportunity where you buy into an existing company in the hopes of not only making that money back but also generating an above-average salary for that type of work.
You pay for their brand name, the systems and business model they already have in place. In exchange, you get to share in the profits you generate by driving sales.
While it’s not the same level of freedom and flexibility as truly owning your own grocery store, there is safety in having Grocery Outlet’s systems and team to assist and guide you. In other words, like working for an employer, you still have to follow rules that other people set. BUT, unlike most employers, you do have greater freedom to make the decisions that you think are best for your store.
And if your decisions drive additional sales or profit, you benefit directly when you get paid.
So it makes sense for someone who has a little cash on hand but doesn’t want the risk that comes with opening their own business from scratch. In Grocery Outlet’s case, the grocery industry is EXTREMELY competitive. Meaning there are grocery stores every few blocks in most major cities.
If you decided to open your own 10,000 square foot grocery store, you stand a very good chance of going out of business trying to compete with Safeway, Wal-Mart, Whole Foods or Trader Joes. So if grocery is your background, buying into a Grocery Outlet franchise might make sense.
73-year-old discount supermarket Grocery Outlet has grown to more than 300 stores in the US, and hopes to raise $100 million through an IPO https://t.co/Ju82JT2tqZ
— CNN Business (@CNNBusiness) May 14, 2019
How much do Grocery Outlet owners make?
The model at Grocery Outlet works by paying the owner-operator a fluctuating pay based on the gross profit a store generates. So it varies.
Now Grocery Outlet is quick to imply that their store owners make well over $120,000/year. However, the website Glass Door, which independently tracks job salaries, shows their average owner-operator annual pay between $97k-$107k for a year. So a slight difference.
It’s also worth noting that Glass Door’s reviews are pretty kind to Grocery Outlet.
They give them a 3.4-star rating (out of 5). They also get an 89% approval rating for the company’s CEOs (Eric Lindberg and MacGregor Read). By comparison, Whole Foods Market rates 3.6-stars and 65% approval.
But going back to the salary, I can tell you that of course, the more sales a store does, generally the better the gross (and net) profit.
After all, a store doing $85,000/week in sales probably could do $100,000/week in sales without needing to hire any more additional people. That naturally makes a store more profitable.
That being said because the potential to drive sales in your store is theoretically unlimited.
So is your salary potential, and there are owner-operators making $200,000-$300,000 in a year. For a couple who run a store together, that would be the combined salary potential; not each.
Above, I mentioned a 6 month training period when you first come on as an independent owner-operator. Just be aware the salary is fairly low during this period, often as low as $60,000/year.
Who is Grocery Outlet owned by?
James Read founded Grocery Outlet in 1946. At that time he called the store Cannery Sales as he focused mostly on reselling government surplus canned goods.
His sons, Steven and Peter Read took over after their father’s death in 1982.
The current CEO of the company is Eric Lindberg, with former co-CEO MacGregor Read now in the role of Vice-Chairman. MacGregor is the son of Steven Read and Eric is the son-in-law of Peter Read.
In terms of true ownership, the company is currently owned by private equity firm Hellman & Friedman LLC, who bought it from another equity firm, Berkshire Partners LLC, in 2014.
They changed the name from Cannery Sales to Canned Foods in 1970. Then from Canned Foods to Grocery Outlet in 1987, and then became Grocery Outlet Bargain Market in 2009.
What is the “Grocery Outlet” business model?
In very simple terms, as Grocery Outlet puts it, “we buy, you sell” (you meaning the owner-operator).
The Grocery Outlet warehouse buyers find the best deals available from lots of well-known brands. These could be cases of Captain Crunch cereal that got misplaced by the Captain in a warehouse somewhere and now only have 3 months left of the use-by date.
But it might also be a great deal on a trendy brand of coconut water or kombucha.
Grocery Outlet computers know what’s on hand in the warehouses and store owner-operators order that product. Since most products are limited in quantity, the operators who order the earliest usually get the best stuff and are more likely to get everything they order.
The early bird gets the worm, and my friend who is an owner-operator usually starts his day at 4 am.
Because only 20% of the products are year-round items, Grocery Outlet owner-operators are constantly doing resets of their shelves to accommodate new items or reduce space for items they can’t get any more.
Because Grocery Outlet stores are smaller and lower sales volume than the stores I ran, they are not as departmentalized.
What I mean by that is at Whole Foods, someone who works in the cheese department doesn’t also cashier or stock apples. In Grocery Outlet, however, virtually all employees go where they are needed. The upside to that is a highly flexible workforce.
The downside is you have a store of generalists instead of specialists.
As the owner-operator, you buy products from Grocery Outlet, and you not only pay them for those products, but they get a cut of the profits too, so they make out like bandits getting a cut on every side.
Now I don’t fault them for wanting to make money; there’s nothing wrong with that. And ultimately it’s their name on the sign and their success is in the hands of the independent owner-operators.
So is the Grocery Outlet Independent Operator Program a good deal?
Ultimately it makes sense for some people and not for others.
If you’re semi-retired from retail management, over age 40 and finding your career options limited and have a little flexibility (such as being an empty-nester), and you have some savings on hand you can access, this could be the right move for you.
I say the above as you need the flexibility to possibly temporarily relocate for the 6 months of training you’ll undergo once your application gets approved (they don’t take just anyone).
You also ideally need to be married to someone willing to run the business with you. At the very least, you should have a friend or other business partner as they very rarely take solo operators.
You’ll need to have at least $25,000 in cash you can get your hands on for the initial investment. And of course, that’s in addition to borrowing upwards of an additional $175,000 from the company which you’ll pay back with interest.
Because of the possibility of some long hours (my friend often works 4 am to 9 pm), this job is not for a couple with young children. But as you get your store dialed in, staffed well, with the right systems in place, you can, of course, cut back on those grueling days.
But this is not a job for someone not willing to put in a lot of hard work.
So ultimately this is not something I would do as I have 3 young children and a wife I enjoy spending time with who wouldn’t be able to run the store with me.
But for others, especially those in their 40’s or 50’s with a lot of experience who find that employers aren’t receptive to paying them what they are worth, it could be a great opportunity.
It is definitely a great deal for Grocery Outlet, and that shouldn’t go unmentioned.
After all, you pay them to buy in, buy the products from them (so they make money on the wholesale side), give them a percentage of the profits plus interest on the money you borrow from them.
And you have all the potential headaches of HR, customer and employee liability in the case of injury, and other things that cost retailers a lot of time and money.
So it’s clearly a win for them. But for the right person, it could be a win for you too.
Did I cover all you wanted to know about whether being a Grocery Outlet Independent Operator is a good deal?
In this article, I took a look at the world of Grocery Outlet and their owner-operator program.
The program is essentially a franchise program. That means limited ownership and control and shared risk. But the possibility of a very good salary once you get your store dialed in.
I personally spent more than 2 decades with Whole Foods Market in leadership positions. In addition, one of my best friends is an owner-operator for Grocery Outlet. So I brought a great deal of experience and knowledge to the writing of this article.
Are you considering joining Grocery Outlet?
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