Dive Brief:
- Sprouts announced the opening of its first store in the highly competitive Mid-Atlantic region, in Ellicott City, Maryland, according to a company release. This marks the sixteenth state in Sprouts footprint, which is primarily focused on the southwest and southeastern U.S.
- The retailer also announced it’s opening thirty stores in New Mexico, Arizona, Florida, California and North Carolina over the course of 2018.
- Sprouts was among the grocers that Whole Foods poached regular shoppers from during its opening-week price reductions after being taken over by Amazon.
Dive Insight:
Three years ago, Sprouts made a very long and very bold leap from its southwestern base to the Atlanta market. The chain had hardly any brand recognition in the southeast, and was platooned hundreds of miles from its nearest cluster of stores. But Sprouts carved out a niche in the very promising region, and has continued to grow aggressively in Atlanta, as well as Florida, North Carolina and now Maryland.
This expansion places Sprouts in some very competitive markets. The Mid-Atlantic region, in particular, has become a free-for-all for discounters, traditional supermarkets, supercenters and now service-first chains like Publix and Wegmans. To its credit, Sprouts brings a differentiated offering to the table with its fresh-first discount specialty products. The chain does about 60% of its sales in produce and other perishable items, and has increased its prepared food offerings along with its private label selection.
Sprouts aggressive growth and highly attractive assortment has paid dividends. During its most recent financial quarter, the company posted net sales of $1.2 billion, a 15% increase from the same period a year ago, while net income jumped 10%, to $41 million from the same period. Same-store sales increased 1.4% while two-year same-store sales grew 5.5%. The company also raised its guidance, and anticipates a 13% to 14% rise in net sales this year over last.
At the Goldman Sachs’ 24th Annual Global Retailing Conference last month, Sprouts CEO Amin Maredia and CFO Brad Lukow said the company plans to grow by around thirty stores per year for the foreseeable future, gradually increasing its store count from a current 250 to more than 1,200.
“Clearly we have a long runway of profitable growth ahead of us,” said Lukow.
To get there, Sprouts is focusing on three core areas, according to Maridia and Lukow: product innovation, improving customer service and advancing in-store and company-wide technology. Maredia noted that Sprouts is using systems to build more effective promotions as well as reduce labor shrink. Sprouts also plans to release a new website early next year that will provide more information on the retailer’s products, standards and suppliers.
Maredia also noted that Sprouts has seen promising growth from its home delivery partnership with Amazon Prime Now.
“Most of the sales are coming outside of the five- to seven-minute trade area,” he said at the Goldman Sachs conference. “So it’s offering the strategic benefit of extending our trade area beyond what most customers like to shop in terms of driving distance.”
As Sprouts has flourished, talk of a possible acquisition has heated up. Albertsons reportedly made a bid for the specialty retailer earlier this year, but the two sides couldn't come to terms. Some speculate that a conventional retailer like Kroger would benefit from the deal, while others note that further consolidation in the discount natural and organic sector would make more sense. Scott Mushkin, an analyst with Wolfe Research, predicts there may be a greater chance of a merger between Sprouts Farmers Market and Fresh Thyme Farmers Market than of Sprouts being acquired by another grocer.
