Report on The Prospects of a Sprouts Farmers Market

Venture Strategy Report: Sprouts

Company Overview

Sprouts Farmers Market is a grocery store chain which primarily focuses on organic products such as food, drinks, vitamins, supplements, hygiene, and household items. Sprouts is sometimes compared to Whole Foods in that it offers similar brands and products; however, Sprouts offers these brands and products at lower prices, according to their company website, Sproputs.com (2017). Sprouts Farmers Market currently operates in 15 states with 250 stores (Sprouts Website). According to Bloomberg News “each week, Sprouts employees in 20 different markets check the produce of about 35 competitors, then lower or raise prices based on the findings” (Patton, 2014). Sprouts became a public traded company in 2013, but has existed since 1943. Through acquisitions and growth, Sprouts currently employs over 24,000 people currently. The store was originally known as Boney’s up until 2011 (Sprouts, 2017). Boney’s was created as a fruit stand which grew into a farmer’s market to provide locally grown organic products to communities within its radius, which initially began in San Diego.

Company management consists of a Chief Executive Officer, a President and Chief Operating Officer, a Chief Financial Officer, a Chief Operations Officer, a Chief Information Officer, a Chief Development Officer, a Chief Marketing Officer, and a Chief Human Resources and Legal Officer. It is also overseen by a board of directors. The store chain is currently working on expansion into every State. According to the Annual Report for 2015, Sprouts’ annual revenue grew to 3.6 billion, store sales increased almost 6%, unit growth reached 14%, and earnings improved by 19% (Sprouts, 2016). Sprouts is continuing momentum toward growing, expanding, and meeting the goals set by the company. “The grocery chain’s dedication to transparency and competitive pricing appeals directly to this next wave of shoppers; Gen X-ers and baby boomers flocked to Whole Foods for healthy snacks, but today’s younger shoppers are looking to Sprouts for healthy eating options, recipes, and information on how their products are sourced” (Patton, 2014).

Product

According to Amin Maredia, the CEO of Sprouts, “we all play a role in being good stewards of our planet and its finite resources and, as a growing natural and organic retailer, Sprouts has a unique opportunity to have a positive impact on our communities” (2017). The store is known for fresh, natural, organic fruits, vegetables, meat, seafood, baked goods, gourmet products, vitamins, supplements, hygienic products and home needs that are at sensible prices. The store prides itself on offering healthy living at an affordable price. With the growing technological advances come the ability to have knowledge easily available. This is why US citizens are becoming more conscious about what they consume. Sprouts is at the center of the most recent healthy eating trend that has been seen sweeping across the country. The American Journal of Nursing reports that adults have become more health conscientious in most recent years (Rosenberg, 2016).

Just as many grocery store chains have in-house brands that are typically less expensive than other brands, Sprouts has a “Sprouts” brand. The store also has staff to direct customers to their needs and recommends products based on the needs and wants of the customers. The website also has a list of products available as well as recipes for various dishes using products found in the store. Sprouts also has a 100% money back guarantee is a customer is not 100% satisfied with any product bought in the store. This store has everything any typical grocery store within the United States has, and more.

Business Strategy

Sprouts centers its business strategy around offering similar products as the competitors, which are other grocery stores in the same radius and organic markets in the area as well, but offering these products in bulk or at a discount. The way in which the store accomplishes making a profit off selling at a discounted rate is by offering products that have a shorter shelf life. The products cost less to procure and the number of products sold is greater because of the affordability in comparison to other competitors. Although they do not last on the shelves of the store for as long a period as products at stores such as Whole Foods, the products have a quicker turn around rate because of their prices. Products that are not selling quickly enough are often marked down to even lower prices to further attract customers. They are often listed as being marked down on the website as well. Coupons are also available on the website, as are a list of monthly deals and weekly specials. “While other big-name grocery stores upcharge organic or gluten-free options, Sprouts extends its value proposition by consistently delivering lower prices on these traditionally premium products” (Patton, 2014).

Market/Industry Overview

There has been an increased awareness of health and the environment in recent years. Because of this increased awareness, there has been a trend to be more healthy and active, watch what is put into one’s body, take care of the environment, and hold corporations and businesses accountable to the effect they have on consumers, employees, and the environment. When the health awareness trend began, there were only organic grocery stores that were extremely expensive and unless an individual surpassed the poverty line, he or she would not be able to afford grocery shopping entirely at this type of a store if at all. In recent years, the price of organic products has begun to drop. Brands have become more conscientious about what they include in their products and organic natural products have become more available. The market for natural and organic products has grown significantly. Transparency has been demanded by the consumers. Natural and organic sellers rely on transparency to sell their products as the consumers will not purchase products in these types of stores without knowing exactly what the ingredients are. Sprouts is able to compete with other better known stores such as Whole Foods because of its dedication to transparency and affordability.

Sustainability/Ethics

Sprouts believes in Corporate Social Responsibility taken to an entirely different level. It cares about the people that choose to work there, the community in which it operates, and the stake holders that are affected. “Sprouts Farmers Market (“Sprouts”) is committed to socially responsible, lawful, and ethical business practices” (Sprouts Website, 2010). Ways in which the store demonstrates its dedication toward this promise is by staffing a risk assessment team which addresses any and all social risk concerns throughout all stores, regular audits to ensure compliance within the store and with outside contractors. These audits are both announced and unannounced or random. All team members, both internally and externally, are expected to adhere to a strict code of ethics and are held accountable for doing so. Violations of adherence may include such disciplinary actions as suspension or dismissal. The company also has several initiatives listed as their responsibilities in sourcing, operating, and building. “Our goal is to reach a “Zero Waste” threshold by 2020, which is a 90 percent waste diversion rate as defined by the EPA” (Sprouts, 2017). Ways in which they reach their ethical and sustainability goals are through initiatives such as the food rescue plan, which donate food that is no longer able to be sold but still edible to local food programs. The company also has a foundation which is called the Healthy Communities Foundation which focuses on hunger relief, promoting nutrition and education, and assisting disabled individuals and individuals with health concerns. Furthermore, the company sponsors many events, makes donations to various programs, and fundraises for various organizations.

Success Indicators

“A Bloomberg Intelligence study in May found that goods at Sprouts, on average, are about 13 percent less expensive than at Whole Foods” (Patton, 2014). Revenue continues to grow. Stores continue to be built in new States and neighborhoods. Earning continue to improve, and the price of stock continues to rise. Sprouts continues perform well and is forecasted as continuing in this trend (Patton, 2014). Although supermarkets in general have seen a decline in growth, Sprouts has remained steady in growth and profit. The annual revenue in 2015 was 3.6 billion, and unit growth reached 14%. The fourth quarter of 2016 showed a net sales of $986 million, which was a 6% increase from 2015 in the same period, according to a press release on the company website. “The Sprouts team delivered industry leading 15% sales growth for the year and positive same store sales in a year significantly impacted by deflationary pressures,” said Amin Maredia, chief executive officer of Sprouts (2017).

Analysis and Conclusion

Sprouts was founded as a tiny fruit stand and has grown into a trusted, friendly, transparent organic grocer with many products at prices much lower than competitors. The idea behind the store is that consumers should be able to afford to take care of themselves and eat healthy. All consumers should have the ability to obtain products at affordable prices. The stores have grown tremendously throughout the years. The business model works and so do the various programs and initiatives that are in place to ensure the stores thrive regardless of the economy or the industry. There are many grocery stores which Sprouts must compete with. Although the products are primarily organic and natural, Sprouts must also compete with large chain stores such as Walmart and Albertsons. The store continues to have a competitive advantage though because of the high-end products that are available here versus stores such as Walmart. “Sprouts Farmers Market operates as a healthy grocery store that offers fresh, natural and organic food that includes fresh produce, bulk foods, vitamins and supplements, grocery, meat and seafood, deli, bakery, dairy, frozen foods, body care and natural household items catering to consumers’ growing interest in eating and living healthier” (Sprouts Annual Report, 2016).

Sprouts offers products at greatly reduced prices, offers coupons, specials, and clearance items. Items that are not sold in time are donated to various community programs as one key initiative of the company is to reduce hunger in US communities. The company also makes regular donations and investments into the communities in which it operates its stores. Sprouts makes a continued commitment to the consumers, to the communities, and to the environment to be responsible, caring, and transparent. Ethics, values, and sustainability are very important to the company and various measures are employed to ensure all rules are strictly adhered to and values upheld. The company has historically done well financially and will continue to do well in the future using the strategies it has in place. The company has essentially found what works in the grocery industry and more specifically in the organic and natural products industry. “The new competition has taken a toll on Whole Foods, which has cut sales forecasts three times this year, sending its shares down 34 percent, while Sprouts has slid 23 percent this year” (Patton, 2014).