Growth in organic, raw, non-GMO and allergy-free products is outpacing rest of business

Sprouts Farmers Market CEO on online delivery: We haven’t found a model that works for us … yet

By Elaine Watson contact

- Last updated on GMT

Organic, raw, non-GMO and allergy-free products are growing faster than everything else, says Sprouts
Organic, raw, non-GMO and allergy-free products are growing faster than everything else, says Sprouts

Related tags: Private label, Revenue

Sprouts Farmers Market is exploring online delivery options, but hasn’t found a model that works, yet, chief financial officer Amin Maredia said this week.

In a call with analysts after the Phoenix-based grocer posted a 59% surge in adjusted net income to $18.2m on net sales up 21% to $735m in the fourth quarter, Maredia was asked by Kelly Bania from BMO Capital Markets: “It seems like there’s a lot of emerging concierge options that some of your competitors have partnered with [eg. Instacart recently tied up with Whole Foods]​, and I’m wondering... about your thoughts there?”

Maredia responded: “We’ve met with a number of companies in this space to evaluate the different approaches and what they’re seeing in adoption, particularly [with] the everyday supermarket customer and middle-income customer.

And we haven’t found a model that successfully delivers on the value commitment to our customers as well as address our customers telling us of their ability to choose their own products, particularly in the perishable departments.”

We’ve met with a number of companies in this space

But he added: “We are looking very closely with a couple of programs and to the extent that ​[we can get] one of these programs… to work, we would probably look to pilot it in one or two markets and see how that works and how our customers respond…

“But we don’t want to work on something that’s not going to bring a lot of value to our customers given all the [other] priorities that we have.”

Organic, raw, non-GMO and allergy-free driving sales

The immediate priorities for Sprouts - which has a long-range target of 1,200 stores - are to expand its private label range from 1,500 to 1,800 items by the year end; increase its specialty product offering; and test new deli offerings; said President and CEO Doug Sanders.  

“The appeal of the Sprouts brand, especially for the middle income, consumer looking for healthier, affordable food choices continues to resonate across the country.”

Sprouts is winning by responding to key consumer trends with products at affordable prices, he added.

“We continue to improve the depth of our product offering in the fast-growing specialty categories that provide strong sales momentum. Specialty categories like organic, raw, non-GMO and allergy-free continued to experience comp and sales growth well above our company average throughout the quarter.”

Deli: We have tested a lot of different elements; salad bars, carving stations, a breakfast bar

Sprouts, which opened 24 new stores last year, sees private label “a great growth vehicle​”, and plans to add new non-GMO, organic, raw and imported product lines this year, said chief operating officer Jim Nielsen.

“Private label is a huge focus for us. We’re ramping up the unit growth. We’re going into the global sourcing side of it, getting into the emerging categories, seasonal and analysis which were part of the success in Q4 and also in fresh foods.”

Sprouts bulk foods
Sprouts plans to expand its private label range from 1,500 to 1,800 items by the end of this year

As for deli-based offerings, he said,Sprouts has been experimenting with a range of different concepts.

We have tested a lot of different elements; salad bars, carving stations, a breakfast bar in the mornings, full service center of the plate and the customer response has been fantastic.

“So we’re also looking to redeveloping our home meal replacement program, which is already successful but continue to just enhance ingredients and packaging.”

We're not targeting the top 10%, we're targeting the middle class

Sprouts Farmers Market, which started in Arizona in 2002 and now operates almost 200 stores in 12 states (the bulk are in Colorado, Texas, Arizona and California), has a mantra of 'helping customers live a healthy lifestyle at an affordable price'.

Sprouts
Sprouts posted a 110% rise in net income to $107.7m on net sales up 22% to $2.97bn in full-year 2014

Speaking at the Natural Products Expo West show last year, Nielsen said: "We're not targeting the top 10%, we're targeting the middle class, transitional customers that want to have a better diet and lifestyle."

But Sprouts is also geared towards how consumers shop today, rather than 50 years ago, he said, noting that many traditional grocery retailers still generate a large chunk of their revenues from low velocity packaged foods or high velocity 'center of store' categories experiencing declining volumes (canned soup, cereal, frozen meals), from stores that are too big and no longer meet shoppers' needs.

Sprouts, by contrast, operates stores of around 25,000-28,000 sq ft that focus on fresh perimeter items that help shoppers decide what to have for dinner tonight- instead of how to restock their pantry, he said.

"Trying to be everything to everyone doesn't work," ​added Nielsen, who said Sprouts has learned a lot from Trader Joe's, a "phenomenal company, really".

Sprouts presentation

Related topics: Markets, The changing retail landscape

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