The closing stores are larger, and in some cases, in “wrong” locations, Sprouts CEO Jack Sinclair said.
Sprouts Farmers Market is closing 11 stores but will open at least 30 new locations this year as it focuses on its newer, smaller concept.
“Back in early 2020, we considered closing some underperforming locations as we shifted our store growth strategy to a smaller, more productive prototype,” said Chip Molloy, CFO at Sprouts Markets, during the grocer’s fourth-quarter earnings call. “We consciously decided not to close those stores as the pandemic struck, so our communities would continue to have access to fresh healthy groceries. We recently revisited that decision and as you may have seen in our release this morning, we plan to close 11 stores in 2023.”
The 11 closing stores are about 30% larger than Sprouts’ current store prototype, and they were all generating negative four-wall cash flow, Molloy said. One of the stores will close during the first quarter and the remaining stores will be shuttered in the second quarter this year, he told investors. Store employees will have the option to transfer to other Sprouts locations.
Last year, the grocer opened 16 new stores in total, nine of which were in its smaller format, which are about 23,000 square feet. Sprouts Farmers Market also closed four locations last year, ending 2022 with 386 locations in about two-dozen states. This year, the grocer plans to open “at least” 30 new stores in the new current prototype format, Molloy told investors. Sprouts will also relocate a Southern California distribution center to a larger facility later in 2023, which it said will reduce miles traveled to its stores.
Sprouts Market CEO Jack Sinclair said the closing stores were larger than Sprouts’ desired size, and some of them were in the “wrong” locations. Sinclair said the closures were being done in a “big chunk” as part of a “one and done” strategy. The move is not too surprising as smaller format stores continue to be popular across retail sectors, including in grocery.
“We would have acted sooner on these stores had it not been for the pandemic,” Sinclair told investors of the closing stores. “We didn’t think it was appropriate to shut grocery stores in the middle of a pandemic in terms of giving access to healthy foods.”
In total, Sinclair said Sprouts Market has about 80 new stores in the pipeline, 60 of which have signed lease agreements. Sprouts Market is on track to meet its 10% unit growth goal in 2024, he said.
Also in the pipeline for Sprouts Markets’ is a greater focus on Sprouts private-label brands, which have become more important to grocers as consumers search for value, more seasonal programs and redesigned packaging. Sinclair said Sprouts Markets would also double down on its offerings of convenience meals following success in the category last year by introducing more “chef-driven” creations, more plant-based options and more family meals.