What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-03-02 compared with 2021-03-02 · 153 added, 181 removed, 205 unchanged (62% of the section changed)

We are a high-growth, extreme value retailer of quality, name-brand consumables and fresh products sold through a network of independently operated stores.

Grocery Outlet is a high-growth, extreme value retailer of quality, name-brand consumables and fresh products sold through a network of independently operated stores.

As of January 1, 2022, we had 415 stores in California, Washington, Oregon, Pennsylvania, Idaho, Nevada and New Jersey.

Our headquarters is in Emeryville, California.

Each of our stores offers a fun, treasure hunt shopping experience in an easy-to-navigate, small-box format.

2 unchanged sentences

Entrepreneurial independent operators ("IOs") run our stores and create a neighborhood feel through personalized customer service and a localized product offering.

This differentiated approach has driven 17 consecutive years of positive comparable store sales growth.

Our founder, Jim Read, pioneered our opportunistic buying model in 1946 and subsequently developed the IO selling approach, which harnesses individual entrepreneurship and local decision-making to better serve our customers.

Underlying this differentiated model was a mission that still guides us today:

“Touching Lives for the Better.” Since 2006, the third generation of Read family leadership, Eric Lindberg, Jr., Chief Executive Officer, and MacGregor Read, Vice Chairman of the board of directors, has advanced this mission and accelerated growth by strengthening our supplier relationships, introducing new product categories and expanding the store base from 128 to 380 stores across the West Coast and Pennsylvania.

Our passionate management team remains a driving force behind our growth-oriented culture.

Our differentiated model for buying and selling delivers a "WOW!" shopping experience, which generates customer excitement, inspires loyalty and supports profitable sales growth:

4 unchanged sentences

We also source everyday staple products to complement our opportunistic offerings.

Each store offers a curated and ever-changing assortment of approximately 5,000 SKUs, creating a “buy now” sense of urgency that promotes return visits and fosters customer loyalty.

Each store offers a curated and ever-changing assortment of items, creating a "buy now" sense of urgency that promotes return visits and fosters customer loyalty.

• How we sell:

7 unchanged sentences

We believe that our broad customer appeal supports significant new store growth opportunities, and we plan to continue to expand our reach to additional customers and geographies across the United States.

Our stores have performed well across all economic cycles, as demonstrated by our history of consistent positive comparable store sales growth and gross margin.

The performance of our business during the COVID-19 pandemic further illustrates the flexibility of our model as we were able to meet the heightened demand with an assortment of products that met customer preferences.

Our model is also insulated from store labor-related variability because IOs directly employ their store workers.

Our stores have generally performed well across all economic cycles, as demonstrated by our pattern of positive comparable store sales growth and gross margin, including during the economic downturn in the years 2009 and 2009.

However, our comparable store sales decreased in fiscal year 2021 as we lapped heightened demand during the onset of the COVID-19 pandemic in 2020.

Our model is also somewhat insulated from store labor-related variability because IOs directly employ their store workers.

The result is a highly scalable business with lower corporate fixed costs, providing further protection in the event of an economic downturn.

OUR COMPETITIVE STRENGTHS

We believe that the following competitive strengths are key drivers of our current success and position us for continued growth:

• Powerful Customer Value Proposition Supported by a “WOW!” Experience .

Delivering thrilling “WOW!” deals to our customers is a cornerstone of our business.

We offer customers quality, name-brand consumables and fresh products at deep discounts in a fun, treasure hunt shopping environment.

Our product offering is ever-changing with a constant rotation of opportunistic products, complemented by an assortment of competitively priced everyday staples across grocery, produce, refrigerated and frozen foods, beer and wine, fresh meat and seafood, general merchandise and health and beauty care.

A typical Grocery Outlet basket is priced approximately 40% lower than conventional grocers and approximately 20% lower than the leading discounters.

Our stores are convenient, easy to navigate and require neither membership fees nor bulk purchases for customers to save money.

Our stores have wide aisles, clear signage and a high level of customer service.

Upon checkout, a cashier “circles the savings” on each customer’s receipt, which reinforces the compelling value that we provide.

• Flexible Sourcing and Distribution Model That Is Difficult to Replicate .

Our flexible sourcing and distribution model differentiates us from traditional retailers and allows us to provide customers quality, name-brand products at exceptional values.

As strong stewards of our suppliers’ brands, we are a preferred partner with a reputation for making rapid decisions, purchasing significant volumes and creatively solving suppliers’ inventory challenges to arrive at “win-win” outcomes.

We take advantage of opportunities to acquire merchandise at substantial discounts that regularly arise from order cancellations, manufacturer overruns, packaging changes and approaching “sell-by” dates.

We supplement our “WOW!” deals with everyday staples in order to provide a convenient shopping experience.

Our buying strategy is deliberately flexible, which allows us to react to constantly changing opportunities.

Our centralized sourcing team has deep experience and decades-long relationships with leading consumer packaged goods (“CPG”) companies.

Our team is highly selective when evaluating the growing number of opportunities available to us and maintains a disciplined yet solutions-oriented approach.

Our specialized model is supported by a supply chain designed to quickly and efficiently deliver an ever-changing assortment of products to store shelves.

• Independent Operators Who Are the Foundation of Our “Small Business at Scale” Model .

Our stores are independent business entities operated by entrepreneurial small business owners who have a relentless focus on ordering and merchandising the best products for their communities, providing personalized customer service and driving improved store performance.

We generally share 50% of store-level gross profits with IOs, thereby incentivizing them to aggressively grow their business and realize substantial financial upside.

IOs leverage our extensive purchasing scale, sophisticated ordering and information systems and field support in order to operate more efficiently.

This combination of local decision-making supported by our purchasing expertise and corporate resources results in a “small business at scale” model that we believe is difficult for competitors to replicate.

The vast majority of the IOs operate a single store, with most working as two-person teams.

We encourage the IOs to establish local roots and actively participate in their communities to foster strong personal connections with customers.

The IOs select the majority of their merchandise based on local preferences, providing a unique assortment tailored to their community.

Our collaborative relationship with the IOs creates a powerful selling model allowing us to deliver customers exceptional value with a local touch.

• Proven and Consistent New Store Economics .

Our new stores have generated robust store-level financial results, strong cash flow and attractive returns.

Our highly flexible, small-box format of 15,000 to 20,000 total square feet has been successful across geographic regions, population densities and demographic groups, and has proved resilient to competitive entries from discounters and conventional retailers alike.

On average, our stores achieve profitability during the first year of operations, reach maturity in four to five years and realize a payback on investment within four years.

We believe that our broad customer appeal, differentiated value proposition and the predictable financial performance of our stores across vintages provide a high degree of visibility into the embedded earnings growth from our recently opened stores.

• Value-Oriented Brand Aligned with Favorable Consumer Trends .

We believe that consumers’ search for value is the new normal in retail.

The success of off-price retailers represents a secular consumer shift toward value as a leading factor in purchasing decisions.

Moreover, as Millennials mature and Baby Boomers age, we believe that they are increasingly focused on value, driving shopper traffic towards the deep discount channel.

We have spent decades building our IO and opportunistic purchasing models to offer deep discounts in a customer-friendly store environment, which enables us to take advantage of this ongoing preference for value.

• Collaborative Company Culture Provides the Foundation for Continued Success .

One of our key competitive advantages is our culture of family and community values, grounded in integrity, entrepreneurship, performance and collaboration.

We have been dedicated to our mission of “Touching Lives for the Better” since our inception.

Our passion and commitment are shared by team members throughout the entire organization, from the IOs and their employees to our distribution centers and corporate offices.

We are a third-generation, family-run business led by CEO Eric Lindberg.

Lindberg has been with Grocery Outlet for over 20 years and has instilled a “servant leadership” mentality that empowers employees and IOs and forms the basis of our highly collaborative culture.

Additionally, MacGregor Read, after over 20 years serving in various operational roles culminating with his time as our Vice Chairman, transitioned to a new non-executive role as the Vice Chairman of our board of directors on April 1, 2020.

Underlying this differentiated model was a mission that still guides us today:

"Touching Lives for the Better." Since 2006, the third generation of Read family leadership, Eric Lindberg, Jr., Chief Executive Officer, and MacGregor Read, Jr., Vice Chairman of our Board of Directors, have advanced this mission.

Grocery Outlet Holding Corp.

was incorporated in Delaware on September 11, 2014.

In 2014, an investment fund affiliated with Hellman & Friedman LLC acquired approximately 80% of our common stock, with management and family retaining approximately 20%.

In June 2019, we completed the initial public offering of our common stock.

Hellman & Friedman distributed the remainder of its holdings in our common stock to its equity holders in May 2020.

Our common stock trades on the Nasdaq Global Select Market under the symbol "GO".

Our Growth Strategies

We plan to continue to drive sales growth and profitability by maintaining a relentless focus on our value proposition and executing on the following strategies:

We plan to continue to drive sales growth and profitability by maintaining a steadfast focus on our value proposition and executing on the following strategies:

• Drive Comparable Sales Growth .

We expect that our compelling value proposition will continue to attract new customers, drive repeat visits, increase basket sizes and, as a result, generate strong comparable store sales growth.

◦ Deliver More “WOW!” Deals and Expand Our Offerings.

We intend to drive incremental traffic and increase our share of wallet by further leveraging our purchasing model.

We continue to deepen existing and develop new supplier relationships to ensure that we are the preferred partner and the first call for opportunistic inventory.

As a result, we believe there is a significant opportunity to source and offer more “WOW!” deals within existing and new product categories, thereby offering greater value and variety to customers.

◦ Support IOs in Enhancing the “WOW!” Customer Experience.

We continue to implement operational initiatives to support IOs in enhancing the customer experience.

We develop and improve tools that provide IOs with actionable insights on sales, margin and customer behavior, enabling them to further grow their business.

We seek to continuously improve our inventory planning tools to help IOs make better local assortment decisions while reducing out-of-stock items and losses related to product markdowns, throwaways and theft (“shrink”).

We also regularly deploy updated fixtures, signage and enhanced in-store marketing to further improve the shopping experience, which we believe results in higher customer traffic and average basket sizes.

◦ Increase Customer Awareness and Engagement.

Our marketing strategy is focused on growing awareness, encouraging new customers to visit our stores and increasing engagement with all bargain-minded consumers.

Our emphasis on digital marketing is enabling us to deliver specific and real-time information to our customers about the most compelling “WOW!” deals at their local store through our daily and weekly “WOW!

Along with the IOs, we utilize social media to increase our brand affinity and interact with customers more directly on a daily basis.

Looking forward, we see an opportunity to further personalize our digital communications to both increase engagement with our existing customers and introduce new customers to our stores.

We expect that our compelling value proposition will continue to enable us to attract new customers, drive repeat visits, increase basket sizes for existing customers and, as a result, generate strong comparable store sales growth.

We plan to increase comparable sales by (i) delivering more opportunistic deals and expanding our offerings;

(ii) supporting our IOs in enhancing the customer experience through inventory planning and other tools;

and (iii) increasing customer awareness and engagement by executing on our marketing strategies.

• Execute on Store Expansion Plans .

We believe the success of our stores across a broad range of geographies, population densities and demographic groups creates a significant opportunity to profitably increase our store count.

Our new stores typically require an average net cash investment of approximately $2.0 million and realize a payback on investment within four years.

Based on our experience, in addition to research conducted by eSite Analytics, we believe existing and neighboring states can support a total of approximately 1,900 stores.

Our goal is to expand our store base by approximately 10% annually by penetrating existing and contiguous regions.

Over the long term, we believe the market potential exists to establish 4,800 locations nationally.

We believe the success of our stores across a broad range of geographies, population densities and demographic groups creates a significant opportunity to profitably increase our store count in existing and new local regions and states.

• Implement Productivity Improvements to Reinvest in Our Value Proposition .

Our seasoned management team has a proven track record of growing our business while maintaining a disciplined cost structure.

Over the past five years, we have made significant investments that have laid a solid foundation for future growth.

We have implemented and will continue to identify and implement productivity improvements through both operational initiatives and system enhancements, such as category assortment optimization, improved inventory management tools and greater purchasing specialization.

Over the past six years, we have made significant investments that have laid a solid foundation for future growth.

We have implemented and will continue to identify and implement productivity improvements through both operational initiatives and system enhancements.

We intend to reinforce our value proposition and drive further growth by reinvesting future productivity improvements into enhanced buying and selling capabilities.

COMPANY HISTORY

Our founder, Jim Read, pioneered our opportunistic buying model in 1946 and subsequently developed the IO selling approach beginning in Redmond, Oregon in 1973.

Grocery Outlet Holding Corp.

was incorporated in Delaware on September 11, 2014.

In 2014, an investment fund affiliated with Hellman & Friedman LLC (the “H&F Investor”) acquired approximately 80% of our common stock (the “2014 H&F Acquisition”) with management and family retaining approximately 20%.

Since the 2014 H&F Acquisition, we have made significant investments in our corporate and distribution infrastructure to support our growth, expand the store base and reinvest in existing stores.

In June 2019, we completed the initial public offering of our common stock (the “IPO”).

Our common stock trades on the Nasdaq Global Select Market under the symbol “GO”.

The H&F Investor distributed the remainder of its holdings in our common stock to its equity holders in May 2020 and held no interest in the Company as of January 2, 2021 .

PROCUREMENT AND SUPPLY CHAIN

Fiscal 2021 and Recent Developments

COVID-19 Pandemic.

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus, COVID-19, a global pandemic and recommended containment and mitigation measures worldwide.

During the third and fourth quarters of fiscal 2021 and continuing into fiscal 2022, there were surges of positive COVID-19 cases related to the Delta and Omicron variants around the country, including all the states in which we operate.

In fiscal 2021, and ongoing to an extent, consumer behavior has been impacted by increased consumer mobility and travel, higher food-away-from-home spend, continued consolidation of grocery store visits, elevated grocery e-commerce usage and higher levels of government stimulus, leading consumers to prioritize convenience over value and negatively impacting our sales.

We and our IOs also had in fiscal 2021, and continue to have, challenges with staffing, inventory supply and timing, and distribution and logistics.

Further, planned construction and opening of new stores also have been, and may continue to be, negatively impacted due to increased time periods to get materials such as steel, obtain permits and licenses and set up utilities.

Additionally, certain fixture upgrades and new refrigeration units now have longer lead times.

Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information on the impact of COVID-19 and supply chain, labor, transportation, new store and inflation impacts.

In spite of these headwinds, we believe the flexibility of our unique buying model, our strong vendor relationships and our agile approach to inventory management have allowed us to maintain healthy inventory levels and an assortment of products for our customers.

Recently, we entered into a pilot partnership with Instacart to test online shopping at 68 stores in California.

We believe an e-commerce channel may allow us to expand our reach to existing and new customers and further leverage our existing retail footprint.

Products and Pricing

Each store offers a curated and ever-changing assortment of products, consisting of on-trend, quality, name-brand consumables and fresh products.

Our product offering includes a constant rotation of opportunistic products, complemented by an assortment of competitively priced everyday staples, across grocery, produce, refrigerated and frozen foods, beer and wine, fresh meat and seafood, general merchandise and health and beauty care.

These products include a wide selection of Natural, Organic, Specialty and Healthy ("NOSH") products.

In fiscal 2021, we began a strategic effort to expand our product assortment, particularly in key everyday areas such as NOSH and fresh, ethnic and local products.

A typical Grocery Outlet basket is priced approximately 40% lower than conventional grocers and approximately 20% lower than the leading discounters.

Opportunistically sourced products represent approximately half of our purchasing mix.

We refer to our best opportunistic purchases as "WOW!" deals, which generally represent deep discounts of 40% to 70% relative to conventional retailers.

These products encourage repeat shopper visits and typically sell quickly due to their compelling value, short duration and continually changing availability.

Our flexible sourcing and supply chain model differentiates us from traditional retailers and allows us to provide customers quality, name-brand consumables and fresh products at exceptional values.

As strong stewards of our suppliers’ brands, we are a preferred partner of leading CPGs with a reputation for making rapid decisions, purchasing in significant volumes and creatively solving their inventory challenges.

Our buying strategy is deliberately flexible to allow us to react to constantly changing opportunities.

As strong stewards of our suppliers' brands, we are a preferred partner of leading consumer packaged goods ("CPGs") with a reputation for making rapid decisions, purchasing in significant volumes and creatively solving their inventory challenges.

Our buying strategy is deliberately flexible to allow us to react to constantly changing opportunities and customer preferences.

Our centralized sourcing team, consisting of our purchasing and inventory planning groups have deep experience and decades-long relationships with leading CPG companies.

4 unchanged sentences

As we grow, we expect to have even greater access to quality merchandise due to our increased scale, broader supplier awareness and expanded geographic presence.

We also expect the supply of opportunistic products to continue to expand as incumbent CPGs continue to invest in new products, brands and marketing.

While COVID-19 has caused CPGs to reduce SKU assortment, we believe that this is temporary and we expect the supply of opportunistic products to continue to expand as incumbent CPGs continue to invest in new products, brands and marketing.

Additionally, we believe that changing consumer preferences will continue to support the proliferation of small and innovative CPG brands, and allow us to add new suppliers to our network.

Opportunistically sourced products represent approximately half of our purchasing mix.

We refer to our best opportunistic purchases as “WOW!” deals, which generally represent deep discounts of 40% to 70% relative to conventional retailers.

These products generate customer excitement and typically sell quickly due to their compelling value.

The short duration and continually changing nature of our “WOW!” deals create a treasure hunt environment and a sense of urgency for customers to find and stock up on those heavily discounted items before they sell out.

Furthermore, our “WOW!” items encourage repeat shopper visits as customers return to stores to discover what new deals are available.

We supplement our opportunistic purchases with competitively priced everyday staples in order to provide a convenient shopping experience.

We typically source these staple products (e.g., milk, eggs, sugar) from multiple suppliers to lower our costs and we avoid long-term supply commitments to maintain the flexibility to pursue opportunistic buys as they arise.

Supply Chain and Distribution

Over time, we have honed our supply chain operations to support our opportunistic buying approach and to quickly and efficiently deliver products to our stores.

3 unchanged sentences

IOs typically order multiple deliveries per week resulting in higher inventory turns, lower shrink and a frequent assortment of new products on shelf.

As further evidence of the flexibility of our supply chain and the value we provide suppliers, we have dedicated teams to handle unique situations in which products need to be reconditioned or relabeled for sale.

We also have dedicated teams to handle unique situations in which products need to be reconditioned or relabeled for sale.

These items may include products without a UPC label, goods labeled for another geography, or inventory with damaged packaging.

We rely on our distribution and transportation network, including by means of truck, ocean and rail to provide goods to our distribution centers and stores in a timely and cost-effective manner.

Deliveries to our stores occur from our distribution centers or directly from our suppliers.

We distribute inventory through eight primary distribution centers.

3 unchanged sentences

Independent Operators

IOs are independent business entities owned by one or more entrepreneurially minded individuals who typically live in the same community as their store and demonstrate a relentless focus on ordering and merchandising the best products for their communities, providing personalized customer service and driving improved store performance.

The vast majority of the IOs operate a single store with most working as a two-person team.

IOs are independent business entities owned by one or more entrepreneurially minded individuals who typically live in the same community as their store with a focus on ordering and merchandising the best products for their communities,

providing personalized customer service and driving improved store performance.

The vast majority of the IOs operate a single store, with most working as a two-person team to leverage complementary operator skill sets.

We encourage the IOs to establish local roots and actively participate in their communities to foster strong personal connections with customers.

We generally share 50% of store-level gross profits with IOs, thereby incentivizing them to aggressively grow their business and realize substantial financial upside.

The independent operator agreement (the “Operator Agreement”) that we sign with each IO gives the IO broad responsibility over store-level decision-making.

We generally share 50% of store-level gross profits with IOs, thereby incentivizing them to grow their business and realize substantial financial upside.

The independent operator agreement (the "Operator Agreement") that we sign with each IO gives the IO broad responsibility over store-level decision-making, unlike a store manager of a traditional retailer.

This decision-making includes merchandising, selecting a majority of products, managing inventory, marketing locally, directly hiring, training and employing their store workers and supervising store operations to carry out our brand's commitment to superior customer service.

2 unchanged sentences

We facilitate collaboration among IOs to share best practices through company-wide and regional meetings, our IO intranet and other online and informal communications.

The combination of local decision-making supported by our purchasing expertise and corporate resources results in a "small business at scale" model that we believe is difficult for competitors to replicate.

Our collaborative relationship with the IOs creates a powerful selling model allowing us to deliver customers exceptional value with a local touch.

4 unchanged sentences

The success of this licensing arrangement depends upon mutual commitments by us and the IO to cooperate with each other and engage in practices that protect our brand standards and the reputation of our brand and enhance the sales, business and profit potential of the IO's store.

The vast majority of the IOs operate a single store with most working as a two-person family team.

We believe this team approach leverages complementary operator skill sets resulting in a greater connection with customers along with improved store operations and service levels.

The Operator Agreement provides that either the IO or we may terminate the Operator Agreement for any reason on 75 days' written notice, or may terminate the Operator Agreement immediately for cause.

19 unchanged sentences

IOs may fund their initial store investment from their existing capital, a third-party loan or, most commonly, through a loan from us (an "IO Note").

The IOs are required to hire, train and employ a properly trained workforce sufficient in number to enable the IO to fulfill its obligations under the Operator Agreement.

IOs are responsible for expenses required for business operations, including all labor costs, utilities, credit card processing fees, supplies, taxes (i.e., withholding, contributions and payroll taxes and income taxes on commissions paid to them), fines, levies and other expenses attributable to their operations.

The IOs are required to hire, train and employ a properly trained workforce to enable the IO to fulfill its obligations under the Operator Agreement.

IOs are responsible for expenses required for business operations, including all labor costs, utilities, credit card processing fees, supplies, taxes (i.e.,

withholding, contributions and payroll taxes and income taxes on commissions paid to them), fines, levies and other expenses attributable to their operations.

In a typical year, we field over 20,000 leads for prospective new IOs annually in pursuit of smart and entrepreneurially minded retail leaders to support our continued growth.

After a robust screening and interview process, we select the top candidates to enter a rigorous Aspiring Operator in Training ("AOT") program with the goal of potentially becoming an IO.

AOTs receive on-the-job training as an employee of an experienced IO that applies to serve as a training store for us and teach the skills that they learned and now rely on to drive their own financial success.

This gives AOTs the chance to experience first-hand what running a Grocery Outlet and managing employees will require.

We supplement on-the-job training with classes at our headquarters, when available, and through online tutorials so that AOTs gain a thorough appreciation for an IO’s responsibilities and opportunities.

AOTs receive on-the-job training as an employee of an experienced IO that applies to serve as a training store for us, which gives AOTs the chance to experience first-hand what running a Grocery Outlet and managing employees will require.

We supplement on-the-job training with classes at our headquarters, when available, and through online tutorials.

Upon successful completion of the training program, AOTs submit business plans to apply for new stores as they become available.

1 unchanged sentence

Based on the strength of that business plan, including an AOT's familiarity with the local market, we ultimately select an IO as new store opportunities open and facilitate the transition.

Our Stores and Expansion Opportunities

As of January 1, 2022, our 415 total stores averaged approximately 14,000 square feet on the sales floor.

Upon entering a store, customers are greeted by signage introducing the IOs, a tailored selection of fresh produce and other perishables, followed by a “Power Wall” displaying some of our most compelling “WOW!” offerings.

Our stores are neatly organized and well maintained with clear signage to guide the customer through our various departments such as produce, beer and wine and fresh meat and seafood.

Specialized item price tags call attention to our “WOW!” deals and highlight our robust NOSH offerings.

Upon checkout, a cashier “circles the savings” on each customer’s receipt, which reinforces the compelling value that we provide.

We lease substantially all of our store locations, with initial lease terms of generally ten years and options to renew for two or three successive five-year periods.

Our stores are convenient, neatly organized, well maintained and easy to navigate with wide aisles and clear signage to guide the customer through our various departments such as produce, beer and wine and fresh meat and seafood.

The stores require neither membership fees nor bulk purchases for customers to save money and have a high level of customer service.

Upon entering a store, customers are greeted by signage introducing the IOs, a tailored selection of fresh produce and other perishables, followed by a "Power Wall" displaying some of our most compelling offerings.

Stores are assorted and merchandised uniquely by IOs providing a "WOW!" treasure hunt shopping experience.

1 unchanged sentence

We have several customized systems and tools in place, including our ordering system that allows IOs to see our real-time inventory and provides ordering suggestions based on local store characteristics.

IOs have broad autonomy to create unique merchandising displays highlighting their “WOW!” offerings which strengthens the local feel of each store.

EXPANSION OPPORTUNITIES

We believe the success of our stores across a broad range of geographies, population densities and demographic groups creates a significant opportunity to profitably increase our store count.

In fiscal 2020 we opened 35 new stores.

We continue to implement operational initiatives to support IOs in enhancing the customer experience.

We develop and improve tools that provide IOs with actionable insights on sales, margin and customer behavior, enabling them to further grow their business.

We believe that new store growth remains our biggest driver of long-term stockholder value.

We further believe the success of our stores across a broad range of geographies, population densities and demographic groups creates a significant opportunity to profitably increase our store count.

In fiscal 2021 we opened 36 new stores, including 24 in California, five in Washington, three in Oregon, two in Pennsylvania, one in Idaho and one in New Jersey.

We have a dedicated real estate team that utilizes a rigorous site selection process in order to source new store locations that generate strong overall returns.

We deploy a store model that generates robust store-level financial results, strong cash flow and powerful returns.

We deploy a store model that generates robust store-level financial results, strong cash flow and attractive returns.

We target new stores of between 15,000 and 20,000 total square feet with an average of 4,000 square feet of non-selling space at an average net cash investment of approximately $2.0 million including store buildout (net of contributions from landlords), inventory (net of payables) and cash pre-opening expenses.

1 unchanged sentence

Our underwriting criteria target an average year-four cash-on-cash return of approximately 35% and an average payback on investment within four years.

On average, our stores achieve profitability during the first year of operations.

We intend to continue to expand our reach to additional customers and geographies across the United States.

We believe that consumers' search for value will continue to be an important factor in retail.

Moreover, as Millennials mature and Baby Boomers age, we believe that they are increasingly focused on value, driving shopper traffic towards the deep discount channel.

In the near term, we plan to grow our store base to capture whitespace in existing markets as well as contiguous regions.

Based on our experience, in addition to research conducted by eSite Analytics, we believe existing and neighboring states can support a total of approximately 1,900 stores.

Our goal is to expand our store base by approximately 10% annually by penetrating existing and contiguous regions.

Based on our experience, in addition to third-party research, we believe existing and neighboring states can support a total of approximately 1,900 stores.

The COVID-19 pandemic has had significant issues on new store development, including labor and materials shortages as well as longer lead times in lease execution, site permitting and

construction.

While these challenges will impact our new store growth in 2022, our goal is to expand our store base by approximately 10% annually by penetrating existing and contiguous regions.

Over the long term, we believe the market potential exists to establish 4,800 locations nationally.

Our ability to consistently deliver "WOW!" deals that generate customer excitement is our strongest marketing tool.

Our value proposition has broad appeal, with bargain-minded customers spanning all income levels and demographics.

Our value proposition has broad appeal, with all bargain-minded consumers.

We promote brand awareness and drive customers to shop through centralized marketing initiatives along with local IO marketing efforts.

As a result of this approach and local marketing campaigns funded by IOs, our marketing expense as a percent of sales is relatively low.

We focus our centralized marketing efforts primarily on digital ads, emailed “WOW!

We focus our centralized marketing efforts to build brand awareness and communicate specific in-store deals to drive customer traffic, primarily through digital ads, emailed "WOW!

Alerts," social media, television and radio commercials, print circulars and in-store and outdoor signage.

Our cost-effective marketing approach is designed to build brand awareness and communicate specific in-store “WOW!” deals to drive customer traffic.

Over time, we have increased the utilization of digital advertising, allowing us to more quickly develop, deploy and target marketing communications based on our changing inventories and store- specific deals.

In addition to our digital ads, we distribute print circulars to align with major holidays and other key promotional events, such as our semi-annual wine sale.

We also market via television, streaming television platforms and radio to specific markets to build brand awareness and highlight the value we provide.

We have increased our utilization of digital advertising, allowing us to more quickly develop, deploy and target marketing communications based on our changing inventories and store- specific deals.

In addition to our digital ads, we distribute print circulars to align with major holidays and other key promotional events, such as Thanksgiving.

We also market via television, streaming television platforms and radio (terrestrial and digital) to specific markets to build brand awareness and highlight the value we provide.

We reinforce these efforts with in-store price and item signage as well as outdoor marketing via billboards and truck wraps.

In fiscal 2021, we made progress building the infrastructure to test a mobile app in 2022 that would increase personalized customer marketing.

IOs develop and fund their local marketing plan to drive customer engagement.

IO efforts include community outreach such as partnering with food banks, sponsoring youth athletic programs and offering discounts to veterans.

In addition, IOs develop and manage their own social media marketing platforms, posting creative and compelling content to reinforce our fun and value-oriented image.

In addition, IOs develop and manage their own social media marketing platforms, posting creative and compelling content.

We compete for consumer spend with a diverse group of retailers, including mass, discount, conventional grocery, department, drug, convenience, hardware, variety, online and other specialty stores.

These businesses compete with us on the basis of price, selection, quality, customer service, convenience, location, store format, shopping experience, or any combination of these or other factors.

They may also compete with us for products and locations.

We also face internally generated competition when we open new stores in markets we already serve.

The competitive landscape is highly fragmented and localized;

2 unchanged sentences

We compete with both conventional grocery stores and discounters by offering an ever-changing selection of name-brand products in a fun, treasure hunt shopping environment at a significant discount.

Many competitors are attempting to attract customers by offering various forms of e-commerce.

While we have embraced online and digital marketing, we have thus far not pursued e-commerce.

Based on our extreme value pricing and lower average ticket, we do not believe that our model lends itself to e-commerce which we think emphasizes convenience over value and fun.

We have prioritized our capital and organizational investments to deliver the deepest and most compelling in-store values and experience for customers.

Many competitors and a number of pure online retailers are attempting to attract customers by offering various forms of e-commerce.

We have embraced online and digital marketing and are committed to rolling out online shopping to our stores through our recent partnership with Instacart.

Beyond competition for consumers, we compete against a fragmented landscape of opportunistic purchasers, including retailers (e.g., Big Lots and 99 Cents Only) and wholesalers to acquire excess merchandise for sale in our stores.

Our established relationships with our suppliers along with our distribution scale, buying power, financial credibility and responsiveness often makes us the first call for available deals.

Our direct relationships with suppliers have increased as we have grown, and we continuously strive to broaden our supplier network.

Business Technology

1 unchanged sentence

We selected and developed these technologies to provide the flexibility and functionality to support our unique buying and selling model as well as to identify and respond to merchandising and operating trends in our business.

Over time, we have modernized and added several systems that provide us additional functionality and scalability in order to better support operational decision-making.

These investments include enhanced point of sale, warehouse management, human resource planning, business intelligence, vendor tracking and lead management, store communications, real estate lease management and financial planning and analysis systems.

We believe the ongoing modernization, enhancement and maintenance of our systems have allowed us to support the growth in our business and store base.

The ongoing modernization, enhancement and maintenance of our information systems have allowed us to support the growth in our business and store base.

We have modernized and added several systems that provide us additional functionality and scalability in order to better support operational decision-making, including enhanced point of sale, warehouse management, human resource planning, business intelligence, vendor tracking and lead management, store communications, real estate lease management and financial planning and analysis systems.

We modify, update and replace our systems and infrastructure from time to time, including by adding new hardware, software and applications;

maintaining, updating or replacing legacy programs, converting to best-in-class systems;

maintaining, updating or replacing legacy programs, converting to enhanced systems;

integrating new service providers;

and adding enhanced new functionality, such as cloud computing technologies.

In addition, we have a customized enterprise resource planning system, components of which have been replaced and additional components of which we anticipate will be replaced over the next several years, including our financial ledger, inventory management platform and product data warehouse system.

We have also built a series of tools that empower IOs to make intelligent decisions to grow their business from improving product ordering, reducing shrink, and gaining intelligence into their store performance and profitability.

In addition, we have a customized enterprise resource planning system, components of which have been replaced and additional components of which we are replacing over the next several years, including our financial ledger, inventory management platform and product data warehouse system.

We also will continue to identify and implement productivity improvements through both operational initiatives and system enhancements, such as category assortment optimization, improved inventory management tools and greater purchasing specialization.

We also have built a series of tools that empower IOs to make intelligent decisions to grow their business from improving product ordering, reducing shrink, and gaining intelligence into their store performance and profitability.

We believe these investments have resulted in valuable business insights and operational improvements.

We anticipate making ongoing technology investments in order to drive further productivity and functionality improvements.

Trademarks and Other Intellectual Property

We own federally registered trademarks related to our brand, including "GROCERY OUTLET BARGAIN MARKET", "WOW!", "NOSH" and "BARGAINS ON BRANDS YOU TRUST!" In addition, we maintain trademarks for the images of certain logos that we use, including the "GROCERY OUTLET BARGAIN MARKET" logo, the "NOSH" logo and the "WOW!" logo.

We are also in the process of pursuing several other trademarks to further identify our services such as “BARGAIN BLISS”, “FEELS LIKE FALLING IN LOVE IN EVERY AISLE”, “THE SAVINGS ARE REAL, THE FEELING IS PURE BLISS” and “HIP HIP SYRAH.” We have disclaimed the terms “GROCERY OUTLET” and “MARKET” with respect to our “GROCERY OUTLET BARGAIN MARKET” trademarks, among other disclaimed terms with respect to our registered trademarks and trademark applications.

We are also in the process of pursuing several other trademarks to further identify our services.

We have disclaimed the terms "GROCERY OUTLET" and "MARKET" with respect to our "GROCERY OUTLET BARGAIN MARKET" trademarks, among other disclaimed terms with respect to our registered trademarks and trademark applications.

Our trademark registrations have various expiration dates;

7 unchanged sentences

Department of Agriculture (the "USDA") the Consumer Product Safety Commission and the Environmental Protection Agency.

We and the IOs are subject to various laws and regulations, including those governing labor and employment, including minimum wage requirements, advertising, privacy, safety and environmental protection and consumer protection regulations, including those that regulate retailers and/or govern product standards, the promotion and sale of merchandise and the operation of stores and warehouse facilities.

In addition, we and the IOs must comply with provisions regulating health and sanitation standards, food labeling, licensing for the sale of food and alcoholic beverages.

We and the IOs are also subject to various federal, state and local laws and regulations, including those governing labor and employment, including minimum wage requirements, advertising, privacy, safety and environmental protection and consumer protection regulations, including those that regulate retailers and/or govern product standards, the promotion and sale of merchandise, packaging material safety and recycling and the operation of stores and warehouse facilities.

In addition, we and the IOs must comply with provisions regulating health and sanitation standards, food labeling, and licensing for the sale of food and alcoholic beverages.

We actively monitor changes in these laws.

In addition, we and the IOs are subject to environmental laws pursuant to which we and the IOs could be strictly and jointly and severally liable for any contamination at our current or former locations, or at third-party waste disposal sites, regardless of our knowledge or responsibility for such contamination.

In addition, we and the IOs are subject to environmental laws, including but not limited to hazardous waste laws, regulations related to refrigeration and stormwater, pursuant to which we and/or the IOs could be strictly and jointly and severally liable, regardless of our knowledge or responsibility.

Shortly after the beginning of the COVID-19 pandemic, many state and local government agencies declared states of emergency, which triggered a wide variety of temporary, but challenging, requirements for the operation of grocery stores.

We and our IOs have worked diligently to comply with these varied rules.

Food and Dietary Supplements — The FDA regulates the safety of certain food and food ingredients, as well as dietary supplements under the federal Food, Drug, and Cosmetic Act (the "FDCA").

7 unchanged sentences

The FDA also regulates the use of structure/function claims, health claims, nutrient content claims and the disclosure of calories and other nutrient information for frequently sold items.

In addition, compliance dates on various nutrition initiatives that will impact many supply chain participants, such as in relation to partially hydrogenated oils, are scheduled to go into effect through 2021.

In addition, compliance dates on various nutrition initiatives that impacted many supply chain participants, such as in relation to partially hydrogenated oils, went into effect through 2022.

The FDA has comprehensive authority to regulate the safety, ingredients, labeling and good manufacturing practices for dietary supplements.

2 unchanged sentences

However, no statement on a dietary supplement may expressly or implicitly represent that it will diagnose, cure, mitigate, treat or prevent a disease.

EBT Payments —Approximately 13% of sales are in the form of Electronic Benefits Transfer ("EBT") payments and a substantial portion of these payments may be related to benefits associated with the Supplemental Nutritional Assistance Program ("SNAP").

Department of Agriculture regulates these programs and their eligibility requirements.

The registration and ongoing compliance requirements for SNAP participation are fairly complex and each of the IOs holds their registration under the name of their business entity and is responsible to ensure that their employees consistently comply with all SNAP rules.

Food and Dietary Supplement Advertising — The FTC exercises jurisdiction over the advertising of foods and dietary supplements.

10 unchanged sentences

Our policies and our supplier compliance agreements mandate compliance with applicable law, including these laws and regulations.

We maintain third-party insurance for a number of risk management activities, including workers’ compensation, general liability, commercial property, ocean marine, crime, director and officer and employee, property and cargo and stock related insurance policies.

We evaluate our insurance requirements on an ongoing basis to ensure we maintain adequate levels of coverage.

The Operator Agreement requires IOs to maintain general liability and workers’ compensation insurance coverage for their operations.

Our people are at the heart of who we are and what we do.

Human Capital Management

Employees — Our people are at the heart of who we are and what we do.

They are key to achieving our business goals and growth strategy.

As of January 1, 2022, we had 946 employees, 803 of whom were full-time and 143 of whom were part-time.

As of January 2, 2021, 392 of our employees were based at either our corporate headquarters in Emeryville, California, or in our Leola, Pennsylvania office.

Of those employees, 131 were classified as field employees.

As of January 1, 2022, 427 of our employees were based at our corporate headquarters in Emeryville, California, and our Leola, Pennsylvania office, 130 of which were classified as field employees.

As of January 1, 2022, our distribution centers employed 331 persons.

The remaining 188 employees were employees in our Company-operated stores.

As of January 2, 2021, 126 of our employees were represented by a labor union, all of whom were employees at two Company-operated stores.

We have not experienced any material interruptions of operations due to disputes with our employees and consider our relations with our employees to be very good.

As of January 1, 2022, 110 of our employees were union employees, all of whom were employees at two Company-operated stores.

We have experienced no material interruptions of operations due to disputes with our employees and consider our relations with our employees to be very good.

Our mission is to Touch Lives for the Better .

2 unchanged sentences

Our values translate into our human capital offerings to recruit, engage, develop, reward and retain employees who believe in our mission and emulate our values.

We provide compensation and benefits programs designed to recruit such talent and to be competitive in the marketplace.

Under its charter, the Compensation Committee of our Board of Directors is responsible for establishing, implementing and evaluating our employee compensation and benefit programs.

We also invest resources to develop our employee's skill sets.

We are steadfastly committed to the health, safety and wellness of our employees.

We offer our employees and their families access to a variety of health and wellness programs, including benefits (i) that provide protection and security so they can have peace of mind concerning events that may require time away from work or that impact their financial well-being;

(ii) that support their physical and mental health by providing tools and resources to help them improve or maintain their health status and encourage engagement in healthy behaviors;

and (iii) that offer choice where possible so they can customize their benefits to meet their needs and the needs of their families.

In response to the COVID-19 pandemic, we implemented safety precautions that we determined were in the best interest of our employees, and which comply with government regulations.

These measures included having certain of our employees work from home, while implementing additional safety measures for employees continuing critical on-site work.

We strive to nurture and uphold an inclusive, diverse environment free from discrimination of any kind, including sexual or other discriminatory harassment.

Our employees are encouraged to openly share questions and concerns they may have with management or Human Resources and they have multiple avenues available through which inappropriate behavior can be reported, including a confidential hotline.

All reports of inappropriate behavior are promptly investigated with appropriate action taken as necessary.

We make it very clear that retaliation against an employee for raising a concern in good faith is prohibited.

We believe that a diverse and inclusive team is critical to our long-term business success.

We have a number of employee networks and initiatives that enhance our inclusive and diverse culture, including our Black Partnership Network, our WOW!

(Winning with Outstanding Women) Network, our Equity, Diversity and Inclusion Council, and by providing regular training on diversity topics.

COVID-19 Pandemic —In response to the COVID-19 pandemic, we continued to reinforce and implemented new safety precautions we determined were in the best interest of our employees, and which comply with government regulations.

These measures included allowing certain of our employees to work from home from a variety of locations, while implementing additional safety measures for employees continuing critical on-site work, including providing personal protective equipment, health and temperature checks, spacing markers, plexiglass shields at check stands, signage regarding face coverings and physical distancing and sanitation stations.

We closely monitor the evolving landscape of the COVID-19 pandemic so we can make appropriate decisions to support and keep our employees safe.

Employee Development —We seek to grow leaders at every level of our organization by creating a culture of mentoring and coaching.

As part of our succession planning, we prioritize growing talent internally within our organization and invest resources to develop our employee's skill sets and career path.

Some of our offerings during 2021 (offered virtually and, in some cases, in person) included:

• A customized leadership resilience program for all employees at or above the director level focusing on a variety of topics including leading and working in a remote environment, strengthening teamwork, learning agility, and managing anxiety

• Certification program opportunities, including offerings in personal growth and professional development

• Lunch and learn events, featuring a wide variety of personal development topics and industry speakers

• Individual coaching for leadership development, and other leadership training on an ad hoc basis

Employee Compensation and Benefits —We provide compensation and comprehensive benefits designed to recruit, reward and retain the talent necessary to advance our mission, meet our business goals and execute our long-term growth strategy.

Our compensation components vary by employee level and include cash base compensation, cash bonuses, equity awards and a profit-sharing program.

Additionally, we provide generous and highly competitive health and welfare benefits programs.

Diversity, Equity and Inclusion —We report annually on employment data, including ethnicity, inline with Equal Opportunity Commission ("EEOC") guidelines and we believe that a diverse and inclusive team is critical to our long-term business success.

Employee Diversity

Racially and ethnically diverse 58 %

We have several employee resource groups that enhance our inclusive and diverse culture, including our overarching Equity, Diversity and Inclusion Council, our Black Partnership Network, and our WOW!

(Winning with Outstanding Women) Network.

We also provide regular training on diversity topics, including those relating to current events in our communities.

We will continue to focus on hiring, retaining and advancing women and underrepresented populations, and cultivating an inclusive and diverse corporate culture through continued education, employee resource groups and targeted recruiting and development across our organization.

The commitment by Grocery Outlet to our communities extends well beyond our offices.

We pride ourselves on giving back to local communities.

In 2020, through a coordinated effort with our IOs involving food, cash and online donations, we held our 10th Annual Independence from Hunger food drive, which supported over 400 nonprofit agencies and helped reduce food insecurity within the communities in which we operate.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information about our executive officers as of March 2, 2021:

We strive to nurture and uphold an inclusive and diverse environment, free from discrimination of any kind, including sexual or other discriminatory/harassing behavior.

We do this by setting an appropriate tone at the top with an open-door policy, having robust policies/procedures in our Code of Ethics and Whistleblower Policy as well as maintaining an internal audit function - all of which support compliance with regulations and ethical behavior.

Website Disclosure

We use our website, https://investors.groceryoutlet.com, as a channel of distribution of Company information.

Financial and other important information about us is routinely accessible through and posted on our website.

Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings and public conference calls and webcasts.

The contents of our website and information accessible through our website is not, however, incorporated by reference or a part of this report.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and the Proxy Statement for our Annual Meeting of Stockholders are available, free of charge, on our website as soon as practicable after the we file the reports with the SEC.

Information about our Executive Officers

The following table sets forth information about our executive officers as of the date of this filing:

Name Age Position

3 unchanged sentences

Bortner 59 EVP, Chief Human Resources Officer

Burke 53 EVP, Chief Administrative Officer, General Counsel and Secretary

Burke 54 EVP, Chief Stores Officer, Interim General Counsel and Secretary

Mayo 58 EVP, Chief Sales and Merchandising Officer, East

McAndrews 61 SVP, Chief New Store Development Officer

McMahon 59 EVP, Chief Sales and Merchandising Officer, West

Wilson 57 SVP, Chief Purchasing Officer

23 unchanged sentences

Bortner served as Chief Human Resources Officer at Maxar Technologies, Inc., a space technology company, from August 2016 to October 2019 and as Chief Human Resources Officer at Catalina, an advertising and marketing company, from August 2012 to June 2016.

Burke has served as our EVP, Chief Administrative Officer, General Counsel and Secretary since January 2019 and previously served as our General Counsel and Secretary from June 2015 to December 2018.

Burke has served as our EVP, Chief Stores Officer, Interim General Counsel and Secretary since January 2022.

Burke previously served as our EVP, Chief Administrative Officer, General Counsel and Secretary from January 2019 to December 2021 and our General Counsel and Secretary from June 2015 to December 2018.

Before joining us, Ms.

1 unchanged sentence

Mayo has served as our EVP, Chief Sales and Merchandising Officer, East since August 2020 and previously served as Executive Vice President of Sales and Merchandising, East since October 2019.

As previously disclosed, Ms.

Mayo will be departing from the Company on March 4, 2022.

Before joining us, Ms.

1 unchanged sentence

Mayo served in various roles in merchandising and operations at Sam's Club, a division of Walmart, from 2004 to 2016, most recently as their Senior Vice President, Operations for the West Division from February 2015 to March 2016 and as Senior Vice President, Operations for the South Division from August 2014 to February 2015.

McAndrews has served as our SVP, Chief New Store Development Officer since August 2020 and previously served as Senior Vice President of Store Development overseeing all company real estate functions since July of 2018.

Before joining us, Mr.

McAndrews served as Chief Real Estate Officer at Conn's Home Plus from June 2017 to June 2018 and as Senior Vice President, Global Real Estate & Construction at Dollar Financial Corporation from February 2010 to June 2017.

McMahon has served as our EVP, Chief Sales and Merchandising Officer, West since August 2020 and previously served as Executive Vice President of Sales and Merchandising since January 2017 and served as our Vice

President of Sales and Merchandising from December 2008 to December 2016.

Before joining us in 2008, Mr.

McMahon was the Chief Executive Officer and Chief Operating Officer of T Street Incorporated, a retail specialty company.

Wilson has served as our SVP, Chief Purchasing Officer since August 2020 and previously served as Senior Vice President of Purchasing since February 2018 and served as our Vice President of Purchasing from July 2006 to January 2018.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business