One of the retailers bucking the challenges facing many essentials-based retailers has been Sprouts Farmers Market (which was the reason that we singled them out in this month's Placer Linkedin TL;DR). And so, being an exception, is also why we’ve written frequently about them this year as some of their initiatives can be replicated by others; moreover, we are also fond of calling out retailers that have nailed the details. Fostering that was focusing the business and moving out of competing with versus against conventional, mass, and club.
At this week's Goldman Sachs Annual Global Retailing Conference, Sprouts CEO Jack Sinclair said, “[The] changes that we made very much trying to make the business more focused on those health enthusiast customers...And that, in itself, leads to a lot of different decisions, making stores a bit smaller coming out of big mass promotional activity, which is designed to chase the whole of the $1.4 trillion grocery marketplace. We're focusing on the $200 billion that is the health enthusiast. When you become more focused on that, it changes what you do in merchandising. It changes what you do in advertising and communication. It changes what you do in store format. And that whole context, the biggest challenge...led us to losing customers. We probably lost about half a million customers overnight (i.e., coupon clippers and deal scourgers)...So there was a few kind of bumps along the way, and that's probably why it's taken a little while to get us where we want to get to, but it's been fun...Part of [our] competitive advantage that we have is when you're operating with a focus on conventional produce in the conventional supermarket space, you have to invest your margin in conventional, which means you have to make your margin up in organic, which creates a gap for us in the marketplace, and we're feeling very confident that the way we're sourcing our organic projects, giving longer-term commitments to growers, giving longer-term commitments to the product is allowing us to get into this kind of 3-way benefit the customer gets a good deal on organic produce. The farmer knows to make money because he's got longer-term commitments, and we can make a good margin at a competitive price. And that's the kind of dynamic that we've got into in organic produce and feeling very strong about that going forward. And that I think is, again, a little bit of a moat for us and there's a geographic issue here.”
“The key for us is that what we put into the stores is different to what you can find in a conventional grocery store. And that's been the focus of the merchandising team. It starts from a competitive dynamic, the company started with produce back in fruit stand back in San Diego many years ago so produce becomes the key factor in terms of the competitive dynamic. The other parts of the store, we try and be as completely different as you could possibly be. So when I walk into a Walmart...But when I see a product that Walmart are selling, my first instinct is let's make sure we're not selling that rather than what are we going to look at the price or look at that dynamic is different when you work for Sprouts than it is when you're working for a more regular grocery store. And that has led us to the foraging team. We had this vision of the truffle pigs in the forest of Slovenia kind of sniffing about looking for product that nobody else can find so we kind of brought that team together and got a wonderful team of people who basically go out, pitch a lot of really innovative food entrepreneurs in the U.S. who we want to be the place that they want to come with their ideas. We put innovation tables in our store where the products that we sell, you won't be able to find anywhere else in the country. And that team is very much focused on how do we find differentiation.”
The benefits of Sprouts’ differentiation and focus strategy are shown in the table below. Gross profit per location is up 17% versus 2019. Real dollar spending per visitor is up +11%. And the number of locations is up 22% because the strong execution gave them the right to grow.
On its newly piloted loyalty program, Sinclair said, “We're on a journey to try to understand our customers better and better is going to be key to the future of how we evolve our merchandising, our marketing, our engagement with those customers. And we want our customers to feel that sense of joy, if you like, or that sense of engagement that's very unique within the context of how grocery schemes operate. We're not giving free gas or half price this or discount for customers who are signed up. This is about creating a kind of engagement and a loyalty that's the customer and we only need the customer to spend a little bit more with us. It's not a huge number. So as we understand it better, the whole point of the test that we're doing in Tucson and we're doing it in Tucson, which is an established market and in Nashville, which is a relatively new market to us. We're trying to create the incent for our customer to give us the information. When we get the information and they scan that information, it will be up to us to use that information really effectively. At the moment, we've got a very low number of people who share the data with us. As that expands, we'll understand that data better. We'll understand what the customer needs are, we'll understand how we can take care of that customer, communicate with that customer. And the teams are working very hard to take the data. I've been very encouraged, first of all, by the way, the teams have engaged in the two markets...Customers are engaging well with it...I would expect [it] to be making a difference to our business by the Q3 2025 or Q4 2025.” As shown in Placer, the Tuscon market is doing about 200 basis points better in terms of traffic than it was in the second half of 2023. That could be the result of the loyalty program.
