Sprouts Farmers Market hits reset button
A new era has begun at Sprouts Farmers Market following the appointment of veteran food retailer Jack Sinclair as CEO and the departures of CFO Brad Lukow and longtime board member and founder Shon Boney. Sprouts had been operating without a CEO since Amin Maredia announced his departure last November and CFO Brad Lukow stepped in on an interim basis. The outlook for Sprouts, a retailer with pretty, but underperforming stores, is now more interesting with Sinclair at the helm, given his track record of success running food at Walmart and Safeway in the U.K. Here’s what to expect from Sprouts now.
Sprouts Farmers Market stores are in for some merchandising, marketing and supply chain changes following the appointment of Jack Sinclair as CEO. Despite operating attractive stores and competing in the hottest sector of food retailing, Sprouts has never quite lived up to its potential. Sinclair could change that by employing business practices in place at retailers such as Walmart and 99 Cents Only while staying true to Sprouts natural and organic roots.
For example, what isn’t often appreciated is the fact that 99 Cents Only is a food retailer masquerading as a dollar store but with a more extreme level of promotional intensity and merchandising flair. The company tends to get lumped in with Dollar General and Family Dollar when comparisons are made of the value channel, even though 99 Cents Only generates close to 80% of its $2.4 billion in annual sales from categories such as fresh, grocery and consumables.
Prior to 99 Cents only, Sinclair ran the largest food operation in the world as EVP of the 4,000 store U.S. Grocery Division of Walmart from 2007 to 2015. Prior to that he spent 14 years with Safeway PLC in London leading operations, merchandising and marketing for more than 450 stores.
At Sprouts, Sinclair assumes leadership of a company whose performance has been trending in the wrong direction. While sales last year increased 12% to $5.2 billion, profits of $158 million were essentially flat with the prior year. The topline growth was driven primarily by new store expansion as same store sales gained a modest 2.1%. That’s not a terrible comp figure in some sectors, but for Sprouts it is quite weak considering the relative immaturity of its store base. The company operates 322 stores and by the end of this year nearly half of its stores will have been opened in the past five years. Typically stores at that stage of maturity should see comps accelerating as shopper traffic builds and transaction sizes grow. Instead, after opening 30 stores in 2018, 32 stores in 2017, 36 stores in 2016, and 27 stores in 2015, Sprouts said at the end of the first quarter its full year same store sales would be toward the low end of a 1.5% to 3% guidance range.
There are no quick fixes to improve the productivity of existing stores and Sinclair won’t have at his disposal some of the infrastructure advantages he was used to at Walmart. For example, Sprouts operates a total of five distribution centers encompassing a combined 675,000-sq.-ft., which is smaller than a typical Walmart DC. The company self-distributes produce, but recently sourcing and supply challenges in the category were cited as one of the reasons for sales weakness.