Sprouts faces challenges in mid-Atlantic expansion

Dense store counts, high occupancy costs present a new environment for chain

Sprouts Farmers Market has enjoyed strong success with its expansion in the West and Southeast, but it faces a more difficult challenge as it heads further up the East Coast into more densely stored and higher-cost operating areas.

The Phoenix-based chain now operates more than 275 locations in 15 states, and recently announced plans for its first Mid-Atlantic store, slated for a 2018 opening in Ellicott City, Md.

“They are coming into one of the most over-stored regions in the country,” said industry consultant Jeremy Diamond, director at Diamond Marketing Group in Baltimore. “We have a lot of new chains coming in, and some that have been here for many years.”

He said he expects that Sprouts will likely come into the market with plans for multiple locations.

Ellicott City is a relatively affluent suburb west of Baltimore, more than 300 miles away from Sprouts’ nearest location in Raleigh, N.C. The suburban Baltimore market is already home to several Ahold-owned Giant Food locations, as well as Supervalu’s Shoppers Food & Pharmacy chain and a handful of Whole Foods locations.

Kroger’s Harris Teeter banner also has expanded in the market, and appears to be doing well, Diamond noted, as has hard-discount operator Aldi. Lidl is also expected to expand into the area before long.

Other operators in the suburban Baltimore market include Wegmans, which added another store last year; ShopRite; Weis Markets; and B. Green & Co., a local company that operates the Food Depot and Green Valley banners. Both Mars Supermarkets and Food Lion exited the market last year, unloading stores to Weis and Giant Food.

Ellicott City, where Sprouts announced its first location, also has some strong Asian supermarkets that excel at perishables, including produce, Diamond noted.

The area is home to large Korean population, and already has an outpost of H Mart, the Korean-owned, pan-Asian supermarket chain.

“I just don’t see where Sprouts would be pulling business from,” said Diamond. “I hope they do well, but it is an extremely over-stored region.”

Asked about the company's plans for the mid-Atlantic, a Sprouts spokesperson said the company has only announced locations planned through the first quarter of 2018, and that the Ellicott City store would be supplied from the company's fresh distribution center in Atlanta, which opened last year.

“We’ve long heard from Maryland residents interested in having their own neighborhood Sprouts," the company said in an emailed statement. "We know there is great interest in the mid-Atlantic region for Sprouts’ natural, organic products at affordable prices across the entire store – value that simply can’t be matched by the conventional supermarkets in the area.”

SN previously cited a March report in the Philadelphia Business Journal that Sprouts also was expanding into the Philadelphia market with a 32,000-square-foot store in a development called Lincoln Square.

One local real estate consultant, who asked not to be identified, said the lack of name recognition will be a hindrance to Sprouts as it moves into the densely stored markets of the mid-Atlantic and Northeast.

“They they will be facing stronger competition in the greater Maryland area, and if they move into the Philadelphia area, I see them having a much more difficult road ahead, particularly with the stronger Whole Foods brand competing with them in those markets,” the consultant said.

Sprouts is reportedly one of the banners that has lost sales to Whole Foods after that chain lowered prices on select items, backed by its new parent, Amazon.

“I don’t see that Sprouts would have any particular advantage, other than locational advantage for those people immediately within a couple minutes’ drive of the store,” the consultant said.

In the areas of the mid-Atlantic and Northeast where Sprouts is seeking to expand, almost all of the prime locations are already taken, and the ones that remain are likely to be expensive compared with sites in the Southwest, where Sprouts operates most of its stores.

“Even though there may be some second-generation space, it will still be at higher occupancy costs than they are accustomed to,” the consultant said.

On its website, Sprouts said it seeks sites offering 28,000 to 30,000 of store square footage in locations that have 100,000-plus population within a 10-minute drive, with above-average per capita income and a high percentage of white-collar workers, at least 40% of whom should have four-year college degrees. Sites would also offer a minimum of 140 parking spaces with 150 to 180 feet of storefront.

Update: Oct. 11, 2017 This story now includes a comment from Sprouts.

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