In a call with analysts after posting a 14% rise in net sales and same store sales growth of 4.1% in the second quarter, Maredia said: “Our private label items continue to outpace our company average in both sales growth and comps. We have launched more than 200 new items year-to-date, already meeting our goal of 2,000 private label items in 2016 and we still have more to come this year.
“And while we're seeing SKU count growth in private label, our comp is outpacing even our SKU count. So we feel really good about the strategic priorities and how that's building up sales, margin, as well as giving us more tailwinds to our overall comp.”
In the second quarter, he said, “we launched exciting items like our organic kombucha product line, our Sprouts Essential Body Care line and continue to build out our Sprouts Market Corner Deli with more grab-and-go meals.”
Salad bars, protein service case, fresh juice, specialty coffee and soup stations
The priorities for Sprouts - which currently operates 243 stores but has a long-range target of 1,200 - are expanding the private label program, enhancing the deli offer, and deepening connections with customers via “digital engagement”, he added.
“We continue to roll out our expanded deli offerings into our existing stores as well as in many of our new stores. To date 32 existing stores and 23 new stores… include our expanded components such as salad bars, protein service case, fresh juice, specialty coffee and soup stations. These enhancements continue to be well received by our customers and enhance our position as a ready-to-eat destination.”
Amazon Prime Now partnership in four metro areas
Asked about the partnership with Amazon Prime Now, with whom Sprouts is working in several cities including San Diego, L.A and Dallas, he said: “We also continue to expand our partnership with Amazon Prime Now with Dallas becoming the fourth major metro area with the Sprouts Delivery Service and we are continuing to explore further expansion of this program.
“We've seen good lifts in the markets, in all of the markets, the lifts have been very consistent. So it's been a good productive activity and we're in discussions with Amazon, they have been a great partner, so we’re in discussions with them on how we can expand this partnership that's mutually beneficial to both of us.”
We’ve been watching ALDI very carefully
Asked about the threat of German discount retailer ALDI, which has been steadily increasing its footprint in the US, and whether there are "too many assets chasing too few sales" in the industry right now, he said: "The likes of ALDI coming into Southern California, we've been watching them very carefully.
"We now have 13 [ALDI] stores within three miles of our stores and we've not seen any material impact from ALDI, but we watch all competitors, we're in their stores all the time and we have good strategies to react to different competitors and different markets to ensure that we can keep as much of our share volume that we can."
The chains that are suffering in this ultra-competive environment are backward-looking “average retailers” who are struggling to remain relevant as the retail and consumer landscape changes, he said.
The competitive environment for the second quarter was more promotional
Sprouts Farmers Market, which started in Arizona in 2002 and now operates 243 stores (the bulk are in Colorado, Texas, Arizona and California), has a mantra of 'helping customers live a healthy lifestyle at affordable prices’.
In the second quarter, net sales rose 14% to $1bn, while same store sales were up 4.1% led by traffic of 3.5% and higher tonnage, but negatively impacted by deflation of 1%, said Maredia.
“The competitive environment for the second quarter was more promotional... During a period of sustained deflation, it's not uncommon for grocers to start beginning more promotions to drive sales.”
Q2 net income rose 6% to $37m at the chain, which added 12 new stores in the second quarter and three more in early Q3.