Phoenix-based Sprouts Farmers Market BB #:168563 had hoped to draw in a different type of shopper with a new marketing strategy focused on premium natural and organic instead of “coupon-clippers” and sale-chasers, but that doesn’t seem to have worked out as well as it hoped.
“Our initial marketing messages fell short,” said CEO Jack Sinclair during the company’s third quarter earnings call on Nov. 4. “We fully expected to see a positive two-ear stack in the back half of this year, and through the third quarter we did not.”
The company began a strategic transformation in mid-2019, hoping to focus less on aggressive low prices and promotions, and more on exclusive product assortment.
COVID-19 didn’t help, as customers abandoned smaller-format stores in efforts to consolidate shopping trips.
“We lost approximately 25% of our transactions, and to-date, they have not returned,” Sinclair said. The new branding and marketing strategy may have turned some shoppers off. “Our changing promotional approach resulted in the loss of coupon-clippers.”
Going forward, Sprouts plans to ensure customers have no doubts about its foundation: fresh produce.
“We’re focused on delivering a clear message that highlights our sharp produce pricing, innovative products, and a farmer’s market experience to drive additional transactions in the quarters and years ahead,” Sinclair said.
While the company shed some of its loss-leader promotions in produce, Sinclair said the messaging that it maintains lower prices than competitors wasn’t strong enough.
“We’ve got to tell the story of what the key differentiator of Sprouts is more effectively, and that simply goes around on pricing on produce,” he said. “In some markets we’re 30 percent to 35 percent cheaper than our competition on it. I don’t think our customers know that well enough, when we’re doing such aggressive high/low, so EDLP (every day low price) needs to come to the fore a little bit stronger in the tactical sense.”
Sprouts did point to some successes in the quarter, and the ability to be more aggressive on local in key markets with new distribution centers.
“The addition of the new DC not only helped in costs, but also helped bring our local produce offering to life in stores,” Sinclair said. “The ability to source from local vendors was prevalent in all the regional stores in (Colorado), and during the quarter sales penetration of local produce in Colorado reached double-digits.”
The company is hoping for similar results in Florida and the Southeast as the local season shifts to that region.
Read the company’s earning release here.
