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Private equity feeds growth plans for Amelia’s Grocery Outlet

Michael Mitchell is president and CEO Amelia's Grocery Outlet. Photo/Brent Burkey

Local executives at Amelia’s Grocery Outlet expect accelerated growth in its increasingly popular business model thanks to new ownership and the backing of a private equity fund.

Boston-based Berkshire Partners announced in 2009 it would invest in California-based Grocery Outlet Inc., which then acquired Lancaster County-based Amelia’s Inc. at the end of last year, Amelia’s President and CEO Michael Mitchell said.

Economic downturns expose new customers to grocery outlets, which buy up and sell extra, unsold or otherwise unwanted products from food businesses at discounted rates, he said.

Once customers discover the experience, they tend to keep coming back when the financial climate improves, Mitchell said.

“It is becoming a very recognized alternative for food shopping, which is why it’s gotten the interest of private equity firms,” he said.

Q: Tell me a little bit about Amelia’s Grocery Outlet and the acquisition at the end of last year.
A: Amelia’s Grocery Outlet was formed in 1989 (when) my father purchased two stores that the Tyson (Foods Inc.) company had owned that were primarily outlets for chicken.

We were approached in May (last year) by Grocery Outlet, who we had known. Being in the same business, we’ve met at industry events, we’ve gone out to see them and they’ve come out to see us. So we were not strangers.

They have 160 stores on the West Coast, and they were bought (into) two years ago by Berkshire Partners, a private equity firm, and they liked what they saw, and they wanted to develop this business further and saw an opportunity on the East Coast.

What made you want to sell the business to them?
For some of those same reasons — we knew who they were (and) we knew their culture. They do want us to continue to run the business out here. It’s not like they are downsizing; it’s the opposite. They are going to provide increased opportunity and increased capital to grow the business faster.

And then, the offer was very attractive. It’s kind of one of those offers that you don’t turn down too easily. It wasn’t something we were thinking about doing. It was a very synergistic purchase for them because they do what we do, and they see the opportunity here.

How many stores do you have and where do you see the expansion coming?
We have 13 stores now. We’re looking to open four stores this year. That is not a pace we would have moved at if (Chief Operating Officer Jeff Good) and I owned the business. We were looking at a store or two a year. (But) we’re looking at four already this year and maybe five or six next year.

We have plans also to move our warehouse to the old Super-Dog (Pet Food Co.) building. It’s about 100,000 square feet in Leola. We will be moving out of this (headquarters and warehouse) site, probably late March (or) early April, into the larger facility, which again will accommodate the infrastructure we need to grow. We were starting to max out on this property.

Are there any worries about growing too quickly?
The only worry would be making sure we have the talent in the organization. This is a service business. We have been successful because of the people and the team we’ve assembled, and to continue to be successful in a retail business, you need to have the talent and the people to help you stay successful.

We need to keep working on that. We are working on a more involved training process and a hiring process to get the talent in and trained that we are going to need to grow.

We do recognize the need for talent and, assuming we can keep up with that kind of talent, which we can if we make a concerted effort to do that, I do not fear that we will have any voids from a talent area.

Backed by a private equity firm, I don’t see (financial resources) as a constraint. We don’t have to go (get loaned) money with a private equity firm backing us, so growth financially should not be a challenge.

Inside individual stores, will customers see any differences?
Changes for the better, I think, but nothing major. We are still going to be trading as Amelia’s Grocery Outlet, we’re still going to offer a lot of the same categories of products that we currently do and the décor will be the same.

But what they will notice, because of Grocery Outlet’s development in sourcing, is some categories we didn’t have previously. A good example is that we recently expanded our health and beauty aid section and added vitamins. We never carried vitamins.

Who is your bread-and-butter customer?
Saving money on brand-name groceries appeals to a lot of people. But if I had to pick a bread-and-butter category, it would be families. Families are our bread and butter because they spend a lot of money on groceries. And so if you are willing to come to an outlet to save money on groceries, first of all, you save more if you buy more. So it makes sense that a family would seek us out more so than a single person.

I think seniors on fixed incomes are also (bread-and-butter customers). While they don’t buy as many groceries, we get a lot of those customers. They like to save the money, they need to save the money and they have time to look for bargains and pick out those items.

And how have things changed in these economic times? I think it has broadened the people who might want to seek out grocery savings. You would certainly think a lower income family would necessarily do that, but as people lose jobs or the economy slows or there is more unemployment, or people are working down some debt payments, it reaches into the middle-income shoppers who begin to say, “You know, I can save some money too.”

The economy forces them into thinking about something they might not have otherwise thought of, but once they get into the habit of shopping us, they don’t want to give that habit up. The average family of four spends about $900 (per month) on grocery store products. So if you can save 50 percent, that’s $450 per month that you can save. And even if the economy improves, who doesn’t want to save $450?

Do you think you might have to fight any misperceptions about the products you sell?
Most people understand we’ve been in business for 25 years and have a strong reputation, and a small percentage of our products are a little past the date — maybe 5 to 7 percent. And even those that are, it is a quality date, not a safety date.

So once our customers understand that, and that when they buy something that might be past the date, they can save 70 to 80 percent — not just 50 percent — and they go home and nobody notices the difference, there are actually people who gravitate to that.
And we police it very closely. We do remove product for sale if it gets past where we like it to be from a dating standpoint. We do it because we don’t want the quality to be at all an issue.

Are you surprised more people don’t shop your format?
Yeah, I always am. I’m surprised that every year more people discover us. We’re seeing double-digit growth now in our Lancaster stores … which tells me people are still discovering us.

This area understands outlets. They just don’t always understand outlets for food. We’ve referred to ourselves already as the T.J.Maxx of foods.

Brent Burkey

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