How Discount Grocery Stores Keep Their Prices So Low

As grocery store prices have risen steeply in the last few years, Americans have made it clear that driving those prices back down is one of their most salient national concerns. A common refrain to help explain the outcome of the 2024 presidential election was the high price of eggs in the wake of the Biden presidency, also known as "egg-flation". And though Donald Trump's proposed tariffs may exacerbate grocery inflation, there's little doubt that voters' distress over their grocery bills was a major factor in his victory.

With that in mind, the chance to save a buck (or a few hundred) on groceries is one many Americans are clamoring for, and certain steep-discount grocery stores offer just that. But how, exactly, do they manage to keep prices so low — and is there a catch? The answer lies in overstock. Stores like the California-based chain Grocery Outlet function by purchasing excess inventory from brands — usually the result of packaging updates or overproduction — and selling them to customers at majorly discounted prices.

There's no secret scam here. The food you buy from a discount grocery store is safe and nothing is wrong with it, other than that there was too much of it to sell in time via traditional stores. However, this does mean that you might end up with some wacky-sounding brands and products that aren't consistently available, since their accessibility depends on overstocking by brands or manufacturers.

Most mainstream grocery store or supermarket chains use the straightforward business model you would expect. They source products from a variety of suppliers, ranging from nationally recognizable to more niche brands, and sell them to customers who want a convenient place to shop for all their groceries, while comparing prices. Shopping at one of these stores is the easiest way to find all the brands and products you desire, but it also means you could be subject to price gouging from a brand and sometimes even the store itself.

If you're a savvy shopper, you might already be familiar with bulk (also known as warehouse or wholesale) retailers such as Costco or Sam's Club, where you can save money on groceries by buying in bulk quantities. Most of these stores require memberships, and make a significant portion of their revenue on membership fees in addition to retail sales. Costco's Kirkland Signature brand allows the retailer to maintain higher profit margins while keeping prices relatively low.

Discount grocery stores take a different approach. Instead of selling in bulk, they pass on savings to customers by selling overstocked products that they purchase for a mere fraction of the typical retail price. This prevents the stock from going to waste and allows shoppers to purchase items at a huge discount. However, even Grocery Outlet admits that it sources basic items like milk traditionally, and simply prices them as low as possible.

According to Grocery Outlet's 2023 Impact Report, customers saved an average of 40% versus conventional grocery store prices, and the brand estimated that shoppers saved a combined total of nearly $3 billion in 2023. In particular, several products were sold at a discount of over 50%, including a pet food brand with an oversupply issue, and two million units of packaged beverages that would have otherwise been discarded due to short expiration dates. Grocery Outlet even prints the amount you save on the bottom of your receipt, and if you submit your receipt to its "Win What You Saved" sweepstakes contest, you might win a gift card in that amount.

The sourcing methods Grocery Outlet employs often means that it stocks little-known brands or products that might sound, well, strange. It's been affectionately called the thrift shop of grocery stores by loyal customers, who have documented their purchases and hauls via TikTok. In one video, a customer highlights ice cream pints with made-up sounding names like "Frobert," "Crémily" and "Creamalicious Aunt Poonie's Caramel Pound Cake." But there are plenty of unbelievable bargains to be scored, as well, like Waygu beef for $6 or vegan brands for a fraction of the usual retail price. If you go in with an open mind and avoid common grocery shopping mistakes, a discount store like Grocery Outlet can yield major savings.