Grocery Outlet, 'like a T.J. Maxx but for food,' comes to Costa Mesa

Amid fierce supermarket competition, a new grocery store chain has come to Orange County, boasting of "extreme discounts" on brand-name items.

Grocery Outlet Bargain Market opened in Costa Mesa on Thursday — the first in the area since a shop in Fountain Valley closed in 2012 — and a store in Westminster will host a grand opening this month. By early next year, an outlet is expected to open in La Habra.

While Grocery Outlet looks like a typical grocery store — the Costa Mesa location sits in a strip mall near a CVS and a BevMo! at 1835 Newport Blvd. — its business model is completely different from that of most of its competitors.

Instead of stocking the same items month to month, Grocery Outlet hunts for bargains among food distributors and fills its shelves with whatever can be bought on the cheap that particular week.

"We're like a T.J. Maxx but for food," said Melissa Porter, vice president of marketing for Grocery Outlet.

The company, which was founded in 1946 in San Francisco, finds discounts when food manufacturers produce too much and need to get the leftovers off their hands, or when traditional supermarkets reject items that are too close to their expiration date.

But the most common way Grocery Outlet acquires cheap products is when a manufacturer introduces new packaging and is suddenly left with perfectly good food in the wrong box.

For instance, said Porter, if a food company decides to start advertising a product as gluten-free, it may have a "warehouse full of products" without the gluten-free label that it no longer wants to sell.

"Rather than disposing of that product, they're better off selling it to us," she said.

But Porter was clear that everything in the store is still fresh.

The benefit of this kind of model, of course, is lower prices.

"We have a 32-ounce container of Silk almond milk for $1.49," said Kelli Wiggins, who owns the new Westminster store with her husband, Scott. "At the conventional grocery stores it's $3.99.

"We can stretch people's dollars like you wouldn't believe," she added.

Bargains at the Costa Mesa store included 5-ounce boxes of organic spinach and arugula, two for $5 (one container was selling for $3.99 at Whole Foods Jamboree in Tustin), a dozen Grade AA eggs for $2.99 (a similar package was going for $4.29 at the Albertsons down the street) and a box of 10 Kashi snack bars for $2.99 ($4.69 at Albertsons).

But it's an interesting time in the grocery business, and one might question Grocery Outlet's plan with Haggen backtracking after its experiment in Orange County and Fresh & Easy being forced to retreat from the area. As the Los Angeles Times has reported, stalwart grocers Albertsons and Safeway, which also own Vons and Pavilions, merged into one company to better compete against market leader Ralphs and others. And stores like Target and Walmart only add to the competition.

Grocery Outlet partnered with Berkshire Partners LLC in 2008, and in 2014, Hellman Freidman, a Bay Area private equity firm purchased a majority interest in Grocery Outlet, making way for the current expansion, according to company officials.  

This is not Grocery Outlet's first foray into Southern California. The chain had a Fountain Valley location — also owned by Kelli and Scott Wiggins. It opened in 2010, but closed two years later. But now Grocery Outlet is making a bigger push into the area, banking on striking it big in one of the wealthiest counties in California on the theory that everyone likes a bargain.

The chain is planning 30 new locations in the next two years and 70 over the next four years.

In Orange County, in addition to the stores in Costa Mesa and Westminster, Grocery Outlet will open a location in La Habra in January. All of its stores are independently owned and operated.

The chain currently has 235 stores in California, Oregon, Washington, Idaho, Nevada and Pennsylvania.

The downside to this business model is that the stores aren't as comprehensive as traditional supermarkets, and customers can't rely on the same items always being in stock.

"The only difference between us and the other grocery stores is that everything comes and goes," said Wiggins. "So we might have Annie's organic bunny crackers this week, but we might not have it next week. If you see something you like, you have to get it now."

But Grocery Outlet stores will always carry the basics, such as fresh produce, milk, eggs, meat, bread and cereal, said Porter.

Many of these perishable items are purchased at the regular market rate and sold at a lower markup than at other stores.

"We can't have some things at a good price and other things not," she said.

Added Wiggins: "Our carton of eggs, I'm making a dime."

Wiggins said that she takes pride in the fact that her store's low prices are going to make food more accessible to low-income families in the area.

"It's not fair that if you're low-income you can't afford to eat healthy for your family, that you can't get the vegetables or organic because they're so overpriced," she said. "But here, anybody can afford to eat well and eat healthy for their family."

According to the Second Harvest Food Bank in Orange County, nearly 350,000 people in the county of 3.1 million are "food insecure," including more than 20% of its children.

Gloria Reyes, CEO and executive director of Abrazar Inc., a community-based agency that serves low-income families in Westminster, is happy to see the grocery chain expanding in Orange County.

"They're speaking a lot to the clients that we see in our food distribution programs," she said. "The 5,000 people that we serve on a regular basis every month will now be able to access lower food prices."

Grocery Outlet in Westminster is donating $1,000 worth of food to Abrazar this year. Those items will then be distributed to Abrazar clients in a Christmas basket donation program.

But Christina Hall, executive director of the Orange County Food Access Coalition, said the relationship between discount stores such as Grocery Outlet and food insecurity is far more complicated.

"What would happen before is that a lot of those manufacturers would donate that leftover food directly to the food bank," she said. "The food bank has been getting less donations now because groups like Grocery Outlet have created secondary markets that allow the manufacturers to sell those products through discount options."

On the flip side, she explained, losing this source of processed food has forced many food banks to get food in other ways, such as grocery rescue programs, which recover nearly expired fresh produce, meat and dairy that stores can no longer sell.

"So in a way, it's kinda cool because now the food banks are providing these higher-cost items in a way they wouldn't have thought to do before," said Hall.

Plus, she said, having cheaper groceries available to families also relieves some of the burden that food banks have to bear.

"It's great for people to be able to buy these products for themselves because there's definitely not enough food in the emergency food system as it is," she said. "It helps keep the number of people who have to use food pantries down."