After two years of halting its real estate expansion plans, a Colorado-based grocery chain is taking the strategy off the shelf with a goal of opening at least half a dozen locations annually for the next several years.
Thanks to a combination of decelerating inflation and and moderating construction costs, Natural Grocers by Vitamin Cottage is ready to end a two-year streak that nearly halved its store opening rate. The Lakewood, Colorado-based company expects the additional locations will boost sales revenue as it opens as many as eight new outposts each year.
"Sales growth was particularly strong and exceeded our expectations as we cycled strong pandemic-related trends," Natural Grocers Co-President Kemper Isely told analysts on the company's latest earnings call. "The strength of our sales trends indicate that we have a loyal and resilient customer base that prioritizes our healthy and sustainably focused offerings. They position us as a leading destination for natural and organic products in our markets."
The move comes as grocery retailers have had to contend with a confluence of macroeconomic factors that have pressured many of their real estate expansion plans.
Increased expenses for labor, construction, supply chain management and other inflation-related issues have pressured already razor-thing margins. Companies have had to significantly increase their capital expenses in order to keep up, now spending 1.3 times more than their historical levels, according to data from global management consulting firm McKinsey & Co.
Natural Grocers, which reported a 4.2% jump in net sales to more than $283 million compared to the same time last year, operates nearly 170 locations in 21 states west of the Mississippi River as of early May.
The grocer will direct up to $35 million this year toward capital expenditures to support its renewed growth initiatives, said Chief Financial Officer Todd Dissinger. Each new location costs about $2.5 million, and it takes about five years before the company is able to make back its initial investment.
Natural Grocers opened one location in Idaho in its second fiscal quarter ended March 31. It is on track to open another six before the end of its fiscal 2023 year in September. The grocer has already finalized leases for at least five of those sites, according to Securities and Exchange Commission filings, with each location averaging about 10,000 square feet of selling space.