Dive Brief:

• Sales at Sprouts Farmers Market rose 16% in the 13-week second quarter ended June 28 compared with the same period last year, to $1.6 billion. Net income hit $67 million, nearly twice what the natural foods supermarket chain recorded a year ago. 
• Sprouts’ sales for the quarter hit their highest level in May, fueled by especially strong sales of grocery, meat and frozen items. Comparable store sales were up 13% that month, contributing to an overall 9.1% quarterly increase in the key metric — well above the company's forecast from earlier this year.
• E-commerce sales were up more than 500% in the second quarter compared with the same period last year and accounted for 12% of the company’s sales during the period. The grocer also benefited from the expansion of pickup service to all of its locations in early May, although delivery generated six times more sales than pickup.

Dive Insight:

Even as Sprouts spent the quarter navigating unpredictable conditions, the company used the changes forced on it by the pandemic to sharpen its focus on the health-conscious consumers executives have made clear they want to do a better job attracting.

“Anecdotally, our stores are seeing a lot of new people that look like the people we will be targeting, and that's quite encouraging,” Sinclair said during the earnings call. “We're going to do a lot more work to get to the bottom of exactly who is coming and who is not coming and there is a lot of back up work being done on customer analytics to see if it's following through on the targeting that we talked about in our last earnings call.” 

The company found that the print advertisements it had been relying on were far less effective at reaching its target market than digital marketing tools, Sinclair said. He added that digital ads have allowed the chain to become more nimble in broadcasting what its produce buyers get on short notice.

Sinclair noted that the company was able to significantly improve its ability to reach its target audience by reallocating money it saved from the elimination of print circulars to digital campaigns. Sprouts sent out 110 million printed weekly ads in June 2019 without knowing how many of those circulars actually were seen by customers, Sinclair said. By comparison, the company recorded 125 million measured digital impressions of its weekly ads this June, an 1,800% increase.

Sprouts has changed the content of messages in addition to moving away from paper-based promotions, and is focused more on bringing its products to life for its customers than on drawing customers looking to save money, Sinclair said. The company is also aware that people tend to peruse digital ads more completely than printed promotional material, he said.

“We're reaching more customers and importantly, customers that aligned most to our offering, and this new media strategy will continue to evolve,” Sinclair said, adding, “Gone are the days when all our marketing dollars are spent talking about price. Our promotions are starting to become more around storytelling.”

The pandemic has also impacted what shoppers are buying from the chain. Organic fruits and vegetables have grown as a proportion of the company’s produce sales, and now account for more than 20% of that category. Meanwhile, sales growth in organic chicken has tripled compared with pre-pandemic levels.

Sinclair also provided insight into how the chain views Aldi, which is in the midst of an expansion program that will take it to markets such as Phoenix, where Sprouts is based. Rather than siphon off sales, the discounter actually has a somewhat positive impact on Sprouts, he said.

“When Aldi comes next to us, it doesn’t make a lot of difference to our business. If anything it drives a little bit of traffic to us, and it’s such a different proposition that the customer seems to be pretty comfortable using us as a complementary shop in that environment,” said Sinclair, who led Walmart’s grocery operations before taking over the top job at Sprouts in 2019. “I’ve competed with Aldi all my career in all sorts of different guises, and they’re a very clear competitor in very many places. For us here at Sprouts, I see them less as a competitor, and in some ways the driving of traffic that comes from it might even help us a little bit.”

Sprouts opened six new supermarkets in the quarter, bringing its store count to 350 locations in 23 states, Chief Financial Officer Denise Paulonis said during the analyst call. The grocer is on course to open approximately 20 stores this year, she said.

In May, Sprouts laid out a long-term growth plan that in addition to targeting health-focused shoppers includes building smaller stores, locating stores closer to distribution facilities and focusing more on frozen foods and center-of-plate proteins.