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Sprouts Farmers Market Reports First Quarter 2020 Results, Maps Out New Brick-and-Mortar Strategy

Sprouts Farmers Market Reports First Quarter 2020 Results, Maps Out New Brick-and-Mortar Strategy


PHOENIX, AZ
Thursday, May 7th, 2020

The organic, healthy foods grocery retailer, Sprouts Farmers Market, has always walked its own path. Recently, the grocer announced its new brick-and-mortar strategy, which includes both a smaller optimized store format and more distribution centers across its Stateside footprint as it focuses on essential grocery goods.

Sprouts’ strategy was disclosed to investors after it released its first-quarter 2020 financial results. Both CEO Jack Sinclair and CFO Denise Paulonis discussed how COVID-19 has helped the company realize the strengths and weaknesses of its brand. Over the last couple of weeks, the team has learned that an enhanced assortment in a smaller box store will help it reach its target audience, expand its consumer base, and introduce healthy grocery items to the market in a more strategic way.

Jack Sinclair, Chief Executive Officer, Sprouts Farmers Market“We believe these smaller stores can deliver sales on par with the larger store as proven with historical locations we have today, resulting in strong returns of a simple model, setting us up well to expand across the country,” Sinclair said during the investors call.

Denise Paulonis, Incoming Chief Financial Officer, Sprouts Farmers MarketPaulonis added, “For the first quarter, we opened four new stores, ending the quarter with 344 stores in 23 states. We remain on track to open approximately 20 new stores this year."

Efficiency was a main theme on the earnings call, with the changing dynamics in consumer behaviors and retailer operations playing large roles as well. All of these factors encouraged Sprouts to roll out its pickup service from 55 stores to its entire store footprint as part of a partnership with Instacart. This move only adds value to its strategy because it continues to differentiate Sprouts’ operation model.

Sprouts Farmers Market revealed a new brick-and-mortar strategy this week, which includes both a smaller optimized store format and more distribution centers across its Stateside footprint

Sinclair continued, “Our store size will reduce to a 21,000- to 25,000-square-foot store. And it will remain a health-orientated brand and deeply rooted in the farmers market heritage with a friendly store experience. No category will be eliminated, but we will integrate changes to reflect our target customer preferences. We’re very excited to grow areas that our target customers prefer, like produce, frozen, and further expansion of center-of-plate proteins, all focused on a differentiated product offering.”

In addition to its regular stores, Sprouts is also eyeing the expansion of its distribution centers. Sinclair specifically noted that Sprouts currently operates five distribution centers, which support its 344-store footprint—with a number of these stores located 500 miles away. This is spurring the company to open DCs within 250 miles of its stores as part of its commitment to provide the best products.

In its new small-format stores, Sprouts Farmers Market plans to grow categories that consumers prefer

“Based on an intersection of where our target customers live, the revenue potential, and where our current and future DCs are and will be located, we narrowed our near-term expansion markets, which alone could provide 300 to 400 more stores,” Sinclair disclosed. “We will continue to focus where we are strong, like California and Texas, while building out Florida and the Mid-Atlantic to achieve a larger concentration of stores. Our plan is to grow at a minimum 10 percent annual unit growth rate but, most importantly, support our growth with our supply chain network.”

While Sprouts Farmers Market and other grocery retailers continue their plans to expand footprints and optimize operations, Deli Market News will continue to bring the latest in the industry.

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