PHOENIX — As the president of Sprouts Farmers Market, Doug Sanders stands at the focal point of what some observers say is one of retailing’s biggest growth opportunities.
After last year’s acquisition of the Henry’s Farmers Market and Sun Harvest banners, Sprouts, under the new ownership of Apollo Management, now ranks as the No. 2 player behind Whole Foods Market in the fresh-focused, natural and organic retail space with an estimated $1.3 billion in sales for the recently ended fiscal year.
Backed by the deep pockets of Apollo, and propelled by consumers’ increasing demand for fresh, healthy foods, Sprouts could continue to be a major consolidator within its niche. It already has been linked in trade reports as having had discussions to acquire Boulder, Colo.-based Sunflower Farmers Markets in the Rocky Mountain region, and other observers noted that it could also go after Fletcher, N.C.-based Earth Fare in the Southeast. NOTE: The company on March 9 confirmed that it has agreed to acquire Sunflower.
Sanders and industry observers have previously told SN that an initial public stock offering could eventually be forthcoming.
“Sprouts is riding a wave of growth with a simple model that is produce-forward,” Jay Jacobowitz, president of Retail Insights, a Brattleboro, Vt.-based natural-product industry consulting firm, told SN.
Helping guide that model is Sanders, a veteran of Brookshire Brothers and Associated Wholesale Grocers who joined Sprouts when the company was formed by the Boney family in 2002. At Sprouts, Sanders has been vice president of IT, chief administrative officer, chief operating officer and president.
He helped guide the conversion of the Henry’s and Sun Harvest banners to the Sprouts format last year, which gave the company a 103-store presence stretching across the Southwest from Texas to California and its first listing in SN’s Top 75 North American Food Retailers, at No. 68.
Sanders was quoted as saying that the company was taking care to manage its expansion carefully.
“We’re not being blinded by our success,” he told the Gluten-Free Bulletin last year. “First of all, we come from humble roots. Second, many of us who run the company have been through mergers before, good and bad.”
He went on to say that Sprouts has to become “better” at the same as it becomes “bigger,” adding up to “more than the sum of its parts.”
“As similar as our companies always have been, it will take time, patience and great diligence to merge them into one,” he told the newsletter of the Henry’s and Sun Harvest acquisition.
Jacobowitz agreed that Sprouts’ biggest challenge would be from managing the rapid growth of the company.
“Assuming they do go forward with the Sunflower acquisition, the challenge is integration,” he said. “How do you make Sprouts, Henry’s, Sun Harvest and Sunflower all play together nicely?”
One of the challenges Wild Oats had faced before it was acquired by Whole Foods, Jacobowitz said, was the lack of uniformity across the chain that stymied vendors seeking to roll out product initiatives.
Another challenge could come in the form of Whole Foods’ increasing willingness to open smaller stores in secondary markets, a niche that Sunflower and Sprouts had occupied successfully while Whole Foods was experimenting with bigger and bigger stores in the years leading up to the recent recession, he explained.
“The takeaway point for industry observers about the Sprouts model is the potential for the medium-sized footprint of about 25,000 square feet,” Jacobowitz said. “While Whole Foods was testing the upper limit of that market with bigger stores — which was absolutely the right thing for them to do — into that void at 25,000 square feet shot Sunflower, Earth Fare and Sprouts.”
Recently, however, Whole Foods opened a 25,000-squre-foot store in Santa Barbara, Calif., and has greatly reduced the size of its optimal prototype going forward.
Jacobowitz said he believes strong growth potential remains for “produce-forward, natural and organic” retailers of that size. He cited Whole Foods’ repeated assertion that it plans to eventually triple its unit count, to 1,000 locations.
“Nobody thinks Whole Foods is going to hit their goal of 1,000 stores this decade, but if you take a look at all the companies that are willing to do 25,000-square-foot stores, we probably will be at 1,000 stores by 2020,” he said.