CEO Jack Sinclair discusses sales gains, marketing investments, private label and more in a conference call with securities analysts on Nov. 8.
Phoenix-based Sprouts Farmers Market reported sales up by 5% to $1.6 billion during the third quarter ended Oct. 2 versus the like period a year ago. Gains were driven by new stores (the company now has 379 stores) and comp sales increases of 2.4%. Net income was $66 million. The company’s e-commerce sales grew by 19% and made up 11.1% of sales during the quarter.
DELI WAS STRONGEST
Deli had the strongest performance among the departments, with strength also reported in bakery, grocery, dairy and frozen. Gross margin rose slightly to 36.7%. E-commerce fees were higher based on the sales increase, and credit card fees also rose as more customers shifted from debit to credit.
Sprouts expects to complete the implementation of perpetual inventory computer-assisted ordering (PICAO) by the end of the second quarter next year. The chain has also invested in an on-shelf availability solution “that provides a single source of truth for product availability as seen from the customers’ eyes,” according to Jack Sinclair, CEO.
The questioner said Sprouts over-indexes on more affluent customers, so it may be protected from recession to a degree, but ‘your prices are a little bit higher than other retailers.’
So far this year, Sprouts has launched an additional 400 private label products and repackaged more than 450 with an updated design that is considered more appealing based on customer surveys. The new packaging also highlights vital product attributes.
During the quarter, the company increased its active e-mail accounts by 19%, its SMS (opt-in marketing texts) accounts by 42%, and mobile app downloads by 15%. It can now link about 16% of all transactions to individual customers compared to just 12% a year ago. Approximately 7.5% of transactions are tied to loyalty customers, up about 50% compared to last year. Baskets of loyalty customers are almost 70% higher than non-loyalty baskets.
The next challenge for Sprouts is getting more engagement. “I think this having more e-mails and having more direct ways of communicating with our customer will help us to build that loyalty, build more transactions sometimes from the same customer and sometimes from new customers,” Sinclair stated.
During its third quarter earnings call with securities analysts, Sinclair was asked about how Sprouts might handle a recession. The questioner said that the company over-indexes on more affluent customers, so it may be protected to a degree, but “your prices are a little bit higher than other retailers.”
Sinclair said Sprouts’ market differentiation is the important factor here. Shoppers who are very focused on a vegetarian, vegan, keto or paleo diet, are more likely to stay that way regardless of economic conditions, he explained. “So, I think we feel we’ve got some stickiness in our proposition in terms of what we offer so that irrespective of what’s happening in the marketplace, our proposition is differentiated and often appeals to a group of people who are very much aligned to what we are putting in front of them.”
Asked about marketing spend, Sinclair noted that “We’ll continue to spend a little bit more money on it. We want to invest in personalization and loyalty. We’re going to be much more precise with our new media model so that what we spend gets us more returns against that specific kind of dollars. And there, it continues to be a level of experimentation. We seem to be able to get awareness with our customer.”
Another analyst asked Sinclair about the success of new formats, particularly the new store prototype that has been open in the Phoenix area for a year now. Sinclair responded that the store is coming through well relative to expectations.
“I’m glad that we’re building smaller stores because there’s a lot of potential costs going the other way in terms of construction,” he said. “And frozen foods has been very encouraging in terms of what’s happened in those new stores, which I think we can double down on going forward.”