Jack Sinclair, CEO of Phoenix-based Sprouts Farmers Market, described in the company’s recent earnings call how Sprouts plans to change its produce pricing and maintain a compelling offering in the category.
Sinclair, a veteran of Walmart and 99 Cents Only Stores who joined Sprouts about six months ago, said the company will focus on more localized sourcing, stronger supplier relationships and less aggressive pricing.
The executive had mentioned in a previous call that Sprouts has been going back and forth between an everyday low price strategy and a promotional pricing strategy, often with overlap.
“That created I think some dilution in our (comparable store) sales and certainly had a detrimental effect on our margin over the last couple of years,” Sinclair said. “As we’ve looked to stabilize that, the first place we’ve looked at is a place where there’s a lot of volatility, and volatility in our produce depends a lot on how we source our produce, and we’ve spent a lot of time trying to figure out what the right way to price our produce business is, which is such a big part of our operation.
“We’re finding ourselves to be in a very strong position competitively across the marketplace and not having to be quite as aggressive on price on our flyer program, so that’s something that we continue to test new ways of attempting to figure out how to maximize our margins while also not diluting the price position that we’re in,” Sinclair said. “I’m not seeing across the competitive landscape anything that’s worrying me in terms of what anyone’s doing to make it more difficult for us to do that going forward.”
Mostly Sprouts still runs about 20% less on its produce than traditional retailers, he noted, but delivering a more unique offering in the department, including more local items, could lead to change in that area.
“We’re going to invest a lot more people and resource in local sourcing so that in Colorado or Florida we’re actually much more effective at bringing in local products and replicating a farmers market,” Sinclair said. “Then it changes the whole price equation in terms of how you can work it. But by and large we’re still at 20% cheaper, the promotions are not quite as aggressive as they were, we’re not seeing any effect on our traffic, and our margins are tweaking up a little bit, so I think we’ll keep doing that for a little while and see where it takes us.”
Part of the driver for sourcing more local produce — along with better replicating the farmers market ideal — is creating a more efficient supply chain.
“Our fresh self-distribution works effectively where we have density; where we don’t it is suboptimal, which creates shrink and cost inefficiency,” Sinclair said. “Going forward, the expansion of our store network and associated logistical support will be more coordinated and concentrated, driving efficiency in distribution and transportation.”
Sinclair noted that developing strong relationships with growers will be key from a daily supply perspective as well as a long-term product development perspective.
“There’s a lot of volatility, and being on top of that volatility from one week to the next, from one month to the next, and from one geographic location to the next, allows you to be very effective at having competitive prices in the right way going forward,” Sinclair said. “More and more as you get to scale, it’s about developing the type of relationships that build long-term growing plans with your growers, and I’ve been excited about the dialogue that we’re having in that, to not only keep our price position and our value position, but bring differentiation in terms of the specifications, things like larger blueberries or sweeter grapes and getting into how you get varietal development in tomatoes and those kind of things.
“That will allow us to continue to have a differentiation and keep produce at the forefront of what a farmers market needs to be,” Sinclair said.