Sprouts Farmers Market plans to open two new fresh distribution centers this year: one in Colorado next month, and one in Florida in early summer.
Those openings will bring the company closer to its goal of having its stores within 250 miles of its distribution centers to optimize supply chain efficiencies and decrease environmental impact, Sprouts CEO Jack Sinclair said on the company’s fourth-quarter and 2020 year-end earnings call Feb. 25.
With the addition of those facilities, the Sprouts network will include seven distribution centers. The newest ones will have additional features like ripening rooms. Having distribution centers closer to stores will also allow them to work with local farmers to carry unique seasonal produce items and guarantee freshness for customers, Sinclair said.
Sprouts also plans to open about 20 new stores this year, including a handful of locations in a new format that is expected to be 20% less expensive to build and 20% less expensive to operate, chief financial officer Denise Paulonis said on the call.
The new format is expected to offer a similar number of SKUs and generate similar sales despite having a smaller footprint, around 25,000 square feet.
An existing store will be remodeled early this summer to include some features of the new format, and the first ground-up location in the new format will open later in the summer in Phoenix. In 2022, all new stores will be in the new format.
Details of the format will be shared later in the year, Sinclair said, but produce will remain “the heart of the store.” The new format will also include expansions of the departments most meaningful to shoppers, attribute-driven messaging to highlight the company’s differentiated products, and innovation centers to showcase new offerings.
Sprouts continues to focus on attracting two key shopper segments: “health enthusiasts and experience seekers,” Sinclair said.
Because those shoppers are the ones the company is most focused on attracting, Sprouts has been revamping its pricing and promotion strategies.
“If you think about what’s happened in the last few years, a lot of the promotion and promotion activity which was trying to serve absolutely everyone and everything really wasn’t working,” Paulonis said on the call. “To put it really simply, at this point what we’re reverting back to is not running loss-leader promotions because that’s not the game we can win, and what that was really doing was hurting both our sales and our profitability with running those promotions but not necessarily attracting that target customer that really would fuel the rest of the growth in the store. Fundamentally, we had cherry pickers.”
Leveraging a variety of marketing tactics to bring in more people in those target shopper segments will be a focus for Sprouts this year.
“We’re only capturing a small percentage of target customers available in our markets due to low brand awareness,” Sinclair said. “Once those customers are acquired, they have a strong affinity to our stores, as seen in our Net Promoter Scores.”