In a rare pullback by a U.S. discounter, Grocery Outlet is closing three dozen underperforming stores this year, most on the East Coast, even as other lower-cost supermarket chains such as Aldi and Lidl are rapidly expanding their retail property nationally.
Grocery Outlet, an Emeryville, California-based specialty retailer, unveiled its plan as it posted a fiscal fourth-quarter net loss of $218.2 million, compared with $2.3 million in net income in the prior-year period. Comparable store sales slipped about 1%.
"Our fourth-quarter results were unacceptable, and our outlook for 2026 reflects a business that has more work to do than we expected." Jason Potter, president and CEO of Grocery Outlet, told Wall Street analysts.
The U.S. grocery sector is extremely competitive, and Grocery Outlet admitted it stumbled. The playing field includes behemoths like Walmart and Amazon, with Prime and its Whole Foods Market chain, and huge pure-play grocers such as Kroger and Albertsons Cos.
Even Amazon has had missteps, in January announcing it was pulling the plug on its fledgling Amazon Fresh, a traditional supermarket chain. But two relatively new entrants to the U.S., German discount grocers Aldi and Lidl, have found success and been on store-opening sprees — in contrast with Grocery Outlet now.
As a result of Grocery Outlet's plan, retail properties in typically high-traffic areas are on the commercial real estate market.
'We expanded too quickly'
"It's clear now that we expanded too quickly, and these closures are a direct correction," Potter said.
In the first quarter of fiscal 2026, the grocery chain said it conducted a strategic, financial and operational analysis of its fleet. On Monday, Grocery Outlet's board approved an optimization plan that calls for closing 36 financially underperforming stores.
The stores that will be closed didn't have "a viable path to sustain profitability," Potter said on the earnings call.
About 30% of them, 24 stores, are in the eastern region, with the 51 remaining there being profitable, according to the CEO. Grocery Outlet doesn't plan to abandon that area, Potter said.
The closing list contains locations in California, Idaho, Maryland, New Jersey, Ohio and Pennsylvania. They are already being marketed by Boston-based Gordon Brothers. The optimization plan is expected to be completed during fiscal 2026.
Grocery Outlet, with the tagline "bargain market," describes itself as a "high-growth, extreme value retailer of quality, name-brand consumables and fresh products." Its opportunistic strategy is to buy overstock, closeout and seasonal items directly from national brands at deep discounts that it passes on to consumers.
The chain has evaluated how it launches new stores and is revamping the process, according to Potter. That includes clustering locations to provide supply-chain efficiency and marketing leverage; being more careful about site selection and having new stores launched by the company, then switching to independent operators.
New stores planned
Grocery Outlet now has 570 stores across 16 states, so the three dozen store closings represent only about 6% of its portfolio. And it still plans to open stores this year, ending up with roughly 30 additional retail locations overall, Potter said. The chain is also refreshing 150 stores this year.
"These [36] closures do not change our long-term view that ample white space remains ahead of us," Potter said. "And we continue to plan to open another 30 to 33 net-new stores in 2026, but they do reflect a more disciplined approach."
Grocery Outlet tapped Gordon Brothers to market the portfolio of retail leasehold interests and related furniture, fixtures and equipment for the 36 stores set to close. Many of them offer remaining lease term and attractive rental structures, with several presenting occupancy costs at or below current market levels, according to Gordon Brothers. The stores are fully built out with customer-ready sales floors, refrigeration systems, back-of-house infrastructure and dedicated parking.
Spaces in 'high demand'
"These are well-located retail spaces in a size category that is in exceptionally high demand across today’s retail landscape," Al Williams, co-head of North America real estate services for Gordon Brothers, said in an email to CoStar News. "Opportunities in established neighborhood centers and dominant regional corridors of this scale do not come to market very often, which is why we expect strong interest from a wide range of national and regional retailers."
Some of the stores that Grocery Outlet is shuttering are in big cities, including Cincinnati, Philadelphia and Baltimore.
Related to the store closings, Grocery Outlet incurred $109.8 million dollars of noncash impairment charges in the fourth quarter, according to Chief Financial Officer Chris Miller.
Also in connection with the optimization plan, the retailer estimates it will incur between $14 million and $25 million in net total restructuring charges in fiscal 2026. On top of those costs, Grocery Outlet said it expects a $4 million and $6 million negative impact on its fiscal 2026 gross profit because of sales discounts or product markdowns to liquidate inventory at the closing stores.
That closing process will include "the termination or sublease of the applicable store leases, the termination or sublease of a lease for a distribution center facility that we are no longer utilizing, and the termination of operator agreements with independent operators for the applicable store locations as well as certain other store locations," according to Grocery Outlet.