How Sprouts Farmers Market Aims to Be Leading Specialty Grocer

Company focuses on own brand, improving loyalty, building exceptional stores and strengthening supply chain
Marian Zboraj, Progressive Grocer
Sprouts Lamb
Sprouts has experienced exceptional growth in attribute-driven categories such as grass-fed beef and no-antibiotic-ever proteins.

Sprouts Farmers Market Inc. is poised to drive sustainable growth for years to come, according to top company executives. The specialty food retailer’s leaders are encouraged about the future after reporting impressive fourth-quarter and year-end performance as the company continues to attract health-conscious consumers.

In Q4, Sprouts’ total sales were $1.7 billion, up $122 million or 8% from the same period last year. This increase was driven by comparable-store sales growth of 3.3% and the opening of six new stores. Traffic was positive both in stores and online throughout the quarter. 

In fact, e-commerce sales grew approximately 17%, representing 12.4% of total sales for the quarter. During this time period, the company launched its partnership with Uber Eats to help acquire new customers and expand access. Including Instacart and DoorDash, Sprouts now has three e-commerce partnerships to help highlight its differentiated assortment.

Meanwhile, for the fiscal year ending Dec. 31, the grocer grew sales by 7%. Its adjusted diluted earnings per share rose 19%, demonstrating attractive profit growth.

“Our strategic approach and specialty positioning allow us to focus on a highly profitable slice of the $1.6 trillion food-at-home space instead of competing with everyone for every customer,” said CEO Jack Sinclair during the company’s quarterly earnings call. “And we believe these results clearly indicate that this strategic shift is resonating with our target customers. We are becoming a leading specialty food retailer. We continue to focus on our target customers, striving to deliver more of what they want: a broader assortment of differentiated, healthy, fresh, high-quality products that are hard to find anywhere else.

In 2023, approximately 15% of the company’s assortment was new, including 400 new Sprouts brand products. 

Attribute-driven products such as organic, grass-fed, vegan and keto grew faster than the company average throughout the year. “These categories have gained popularity due to their superior quality and health benefits, making them a top choice for our customers who prioritize healthy eating,” said CFO Curtis Valentine. “This was true during the holidays, with strong growth from the return of Sprouts brand seasonal favorites and our convenient attribute-based holiday meal bundles. Sprouts brand made up 21% of our total sales in the fourth quarter as our unique products continue to appeal to our target customers.”

Sprouts’ initiatives for 2024 aim to strengthen its foundation while setting the table for sustainable long-term growth. To accomplish its goals, the company plans to drive even more innovation in the Sprouts brand.

“Our intent is to become a leading provider in attribute health-driven categories, such as organic, vegan, grass-fed and keto, prioritizing winning and gaining market share in these differentiated categories,” said Sinclair. “To achieve this, our foraging team is searching far and wide for new health trends and working with niche vendors to find differentiated products such as low-caffeine annuity, Popadelics – a snackable mushroom chip – and matcha bubble tea drops.”

Sprouts also plans to leverage its innovation centers in store. The grocer started adding branded innovation centers within its newer, smaller store formats that opened in 2021 and 2022. The dedicated section is focused on a rotating selection of trending products and new-to-Sprouts brands.

“In 2024, we have an opportunity to gain new health enthusiasts and increase our share of wallet among existing customers,” noted Sinclair. “We'll continue to prioritize store execution to provide great in-store experience and exceptional customer service while maintaining an omnichannel approach to meet customers wherever they are.” Sprouts ended 2023 with the company's best customer service scores. 

The company aims to win more loyalty from its target customers by introducing the first iteration of its new loyalty program this summer.

According to Valentine, the company plans to invest approximately $15 million this year, primarily focused on the buildout of its new loyalty program.

[RELATD: Why Customer Experience Is the Crux of Grocery Loyalty]

In addition, Sprouts aims to strengthen its supply chain this year. The company helped improve capacity in the supply chain in 2023 with a new distribution center in Southern California, expanding its Texas distribution center and adding ripening rooms to improve product quality.

Sprouts plans to open an estimated 35 new stores in 2024, all in its smaller-format design. The design concept features an approximately 23,000-square-foot footprint, and a bright and airy farmers market experience with an open layout, community feel and produce at the heart of the market. 

For the full year, Sprouts expects total sales growth to be 5.5% to 7.5% and comps in the range of 1.5% to 3.5%. Adjusted earnings before interest and taxes are expected to be between $397 million and $412 million, and adjusted earnings per share are expected to be between $2.85 and $2.95, assuming no additional share repurchases. 

Phoenix-based Sprouts Farmers Market employs about 32,000 associates and currently operates more than 400 stores in 23 states nationwide. The company is No. 51 on The PG 100, Progressive Grocer’s 2023 list of the top food and consumables retailers in North America

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