Sprouts Planning Big Changes in 2020

Sprouts Farmers Market is looking to accelerate growth in 2020 by overhauling its brand strategy, modifying its store footprint, and rebalancing investments in pricing and promotions.

Just a few months after being named CEO, Jack Sinclair says the company is moving in the right direction but will put in place some new initiatives to accelerate long-term growth and value creation.

“We have the opportunity to build one of the strongest grocery brands in the United States by making healthy eating affordable to all, through improved marketing efforts,” Sinclair said during the company’s third quarter earnings call. “Our customers should know our product that is far superior to compare to our competitors.”

Sinclair said the Sprouts brand is differentiated and has salience for both existing and potential customers, and that the retailer's "private label focus continues to grow with significant future expansion available." But, “we are not telling the brand story to the best of our ability,” he said, citing multiple lines of store brand products. To fix this, the retailer plans to build a “cohesive private label brand,” streamlining and improving communication to customers that maximize the Sprouts position as the affordable, healthy living grocer. 

During the call, Sinclair also said the company would be opening fewer stores in 2020 as it looks to “drive efficiency in its store network, distribution and transportation.” Sinclair said the company would be downsizing its format, because newer, larger stores have become complicated and expensive to build and operate.

“The size of our store prototype has increased slightly over the last few years,” Sinclair said. “But the cost to build has increased significantly. And our smaller stores tend to be more productive than our larger stores. Our fresh sales distribution works effectively where we have density, where we don’t, it is suboptimal, which creates shrink and cost inefficiency.”

On the pricing and promotions front, Sinclair said Sprouts is “unwinding a little bit of the very, very aggressive pricing promotions on top of promotions on top of promotions” because the grocer is “not getting credit for from a traffic perspective or even a sales perspective … We do expect to be more selective with promotions than we were last year.”

In the battle of grocery delivery versus. grocery pickup, Sprouts says the company will continue to offer both, even though shoppers seem to prefer delivery.

“We’re not going to stop to click and collect. There’s customers who are going to want that service. It doesn’t cost us a lot of extra money to do that service,” Sinclair said. “We do six times on the delivery side than we do on click and collect right now. But we’re still going to offer that service and we’ll grow as the online costumer grows up.”

Q3 Results

To wit, Sprouts home delivery sales were up more than 200% during the third quarter, and a significant amount of online business came from repeat customers.

For the third quarter ended Sept. 29, Sprouts Farmers Market reported a same-store sales increase of 1.5% and an 8% increase in revenue to $1.4 billion. Two-year same-store sales growth is now at 3%.

Sprouts said traffic was down slightly during the quarter but basket was up.

Net income for the quarter was $26 million compared to $38 million for the same period in 2018. Diluted and adjusted diluted earnings per share was 22 cents, compared to diluted earnings per share 29 cents and adjusted diluted earnings per share of 27 cents, for the same period in 2018. 

During the third quarter of 2019, Sprouts opened nine new stores resulting in a total footprint of 335 stores in 21 states.

Also during the quarter, six more Sprouts Farmers Market grocery stores in Florida garnered Manomet’s Grocery Stewardship Certification (GSC), bringing the total number of the grocer’s stores in the program to 90. 

Phoenix-based Sprouts employs more than 30,000 associates and operates 335 stores in 21 states. The company is No. 22 on Progressive Grocer’s 2019 Super 50 list of the top grocers in the United States.