“More of a farmer’s market than a grocer.”
That was how Sprouts Farmers Market CEO Jack Sinclair described his view of the future for the natural products retailer during Bernstein’s 36th Annual Strategic Decisions Virtual Conference. To further this goal — which Sinclair likened to creating a model that draws inspiration from where the company started — Sprouts will rely on new approaches to merchandising, real estate and the supply chain as it moves forward in a mid- and post-COVID-19 world.
Of particular note will be the emphasis on marketing to a more targeted audience made up of what Sinclair referred to as “health enthusiasts and experience and innovation seekers.” By not trying to be everything to everyone, the company will be able to focus on those customers seeking healthy products that play to its strengths.
These include the already well-developed categories of vitamins, produce — particularly organic — and frozen, the latter of which stands out for its appeal to different dietary tribes. According to Sinclair, a 3% share increase of the target customer would double sales for the retailer.
Differentiation is another key factor when it comes to products and promotion. With the goal of making marketing more efficient and effective, spending will move away from promotions and toward increasing national brand recognition. This entails more spending on engaging and interacting with target customers through digital and social platforms. Partnerships with local brands also offer opportunities to connect with communities and tell stories around differentiation and innovations, and they will be an important focus moving forward.
“Our target customers are drawn to our product differentiation,” said Sinclair (left). “Marketing inside or outside the store, we will highlight our differentiation in each category like our attribute-driven paleo, keto and plant-based campaigns emphasizing digital shopping list and customer engagement around our buzzworthy smaller brands. Our ultimate goal is to make our marketing dollars more efficient and effective, and most importantly help drive traffic.”
In addition to private brand expansion, another important strategy will be that of promoting innovation and new and emerging brands. New stores will have innovation centers for demos and to serve as new product incubators.
Smaller but surer
As Sprouts continues with its plans to open 20 new stores this year — filling in key markets such as California, Texas and Georgia and building out in new areas including the Mid-Atlantic and Florida — the floor space of the new stores will be reduced by around 20%. Not only will this make the new stores less expensive to build, but it will also feed into the farmer’s market-like experience.
Consumers can expect areas such as the deli counter to remain, said Sinclair, but in a more simplified version. Those categories that differentiate Sprouts from other retailers will be key. In addition to recent growth in health-related products and those that support specific lifestyles (keto, paleo, vegan plant-based, etc.), other products performing particularly well right now include organic produce, grass-fed beef and organic chicken.
“Going forward,” he said, “our new stores will be smaller, 21,000 to 25,000 square feet. And I want that farmers’ market feel with smaller square footage with no less categories, just refined to really meet our target customers' needs. We're very excited to grow our target customers, to grow in areas where our target customers prefer their produce, frozen and further expansion of our center of plate protein, all focusing on a differentiated product offering. Categories like dairy will remain and will become more simplified. If anything, COVID-19 gave us a glimpse of what this may look like.”
Sinclair added, “On the flip side, the new format will contain an innovation center where our vendors can demo new products, our incubator brands can display what is new and trendy. We can reduce our non-selling space and therefore maintain a large number of SKUs. We believe these smaller stores can deliver sales on a par with the largest store as proven with many historic locations we have today, resulting in strong returns of a simple model that we had in the past, setting us up well to expand across the country.”
These expansion plans go hand in hand with a revamping of the company’s supply chain, something that Sinclair said is essential to guaranteeing customers have access to the freshest products possible. Currently operating on a 500-mile structure, future distribution centers should be located no more than 250 miles from stores. To this end, new centers will be established in Florida and Colorado in 2020-2021 and in the Mid-Atlantic region in 2021-2022.
Lessons from the pandemic
As for the changes brought on by the COVID-19 pandemic and what these could mean for the future, Sprouts' CFO Denise Paulonis pointed out that in some ways the situation helped amplify and speed up changes that were already on the horizon. One example is the fact that the company was able to expand curbside pickup from just 55 stores to the entire chain in a short period of time.
Another is the new focus on e-commerce, which represented 4% penetration in the first quarter (an increase of 160%), 13% in April of this year and 12% in May. Despite not knowing what the “new normal” will be, Paulonis was clear on the fact that, going forward, new stores should be optimized to serve e-commerce.
That was reinforced by Sinclair, who said, “Something else we’ve learned through COVID-19 is that customers want at-home delivery and curbside pickup. And we don’t think this is going to go away anytime soon. And because of that need, we've rolled out curbside pickup across all our stores in the last few weeks and the focus on e-commerce will continue within our strategy implementation. Ultimately, we're agnostic as to where our customer transacts, but instead focused on strong engagement and building brand equity with those customers.”
Other changes implemented during this health crisis that Paulonis predicted will remain in place in the future are the new cleaning and safety protocols that were implemented in stores. “Not that we didn’t focus on being clean and taking care of our employees and our customers [before], but, more than ever, that’s just going to be a regular course of business going forward,” she said.
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This article originally appeared on New Hope Network, a Supermarket News sister website.