July 5, 2012
PL Buyer: Sprouting Wings
Through a special arrangement, what follows is a summary from a current article from Private Label Buyer, presented here for discussion.
With its move to buy Sunflower Farmers Market, Sprouts Farmers Market will become the second largest natural and organic foods retailer behind Whole Foods Market.
Based in Phoenix, Sprouts is owned by private-equity firm Apollo Global Management LLC, but minority owners Stan Boney and Shon Boney have run the operations since Sprouts’ merger last year with 45-unit Henry’s Farmers Market.
With 35 more from Sunflower slated to join the fold when the buyout closes this spring, Sprouts will have more than doubled in size in the past 18 months. It will have more than 140 stores in eight states.
Beyond gaining economies of scale and a higher door reach with the Sunflower acquisition, Sprouts will benefit by increasing its selection and item count as it integrates Sunflower’s private label offerings. Based in Boulder, CO, Sunflower reworked its own PL offerings just over a year ago after acquiring the rights to the Sunflower private label name in its own markets from Supervalu.
Sprout’s President Doug Sanders told Supermarket News in a recent interview that the company learned plenty in the past year as it integrated Henry’s with Sprouts, lessons that will benefit the company as it prepares to merge Sunflower’s stores into Sprouts. The private label strategies were one of the most important parts of the company’s 2011 merger with Henry’s, which also includes the Texas-based Sun Harvest chain.
"Henry’s had a different approach than Sprouts in some categories," Mr. Sanders said. "For example, they had a larger focus on fine wines, and we’re integrating that approach at Sprouts. Henry’s also put more emphasis on bulk foods, and we’re adding that at the Sprouts stores."
The size of Sprouts and its expansion into four new states with the Sunflower deal puts it squarely in a position to compete against Whole Foods and Trader Joe’s in the natural/organic foods retailer industry nationwide.
BrainTrust
Recent Discussions
Discussion Questions
Discussion Questions: What do you think of Sprouts’ positioning compared with Whole Foods and Trader Joe’s? How much benefit does Sprouts potentially gain from the acquisitions of Sunflower and Henry’s, particularly their private label content?
Poll
I don’t see huge benefit. Both are minor league players that are just a fraction compared to Whole Foods and TJ’s. In fact, Sprouts has been closing stores in markets such as Austin, Texas. Their sales per square foot is far below the standard set by Whole Foods and TJ’s. They will always get stuck with B locations because their sales can’t pay the rent of the A locations. Private label? WF and TJ’s have already taken that to a new level.
The benefit of the acquisition is buying time.
Trader Joe’s has a special aura that keeps their customers coming back; and more importantly, spreading the word with an almost cult-like following. The areas without a Trader Joe’s have groups “cropping up” filling petitions begging them to open close to them. I don’t see that with Whole Foods customers. While this can become a three horse race, I see Trader Joe’s pulling ahead. Let the games begin.
Sprouts falls between WF and TJ’s. They offer quality products at lower prices than WF, but are higher priced and more outside brand focused that TJ’s. It’s a good model. If they are going to lower prices, they need to move towards more private label products. If they are looking to attract more WF shoppers, they need to emphasize their organic credentials.
The organic food retail industry is very interesting and will provide a lot of consumer information for years to come. I say this from the observation that this is seen by many as an electable higher cost of living by the consumer. In the time of plenty, the decision to engage in the expense of this lifestyle was fully attainable by many consumers. As the economy of 2004 evolved into the depression of 2007 that still lives today, I gave no second glance at these retailers as survivors. Now I am watching what appears to be the growth of a legitimate retail and manufacturing industry. The company mergers and acquisition of private labels as a means of expanding into the marketplace may be considered only in the presence of an economically stable marketplace, which the organic foods market continues to demonstrate. I wonder what parallels exist between the organic foods industry and the cosmetics industry?
When I was growing up, the local organic foods store — I think it was actually called “health” foods — was a postage stamp sized storefront with most of the space taken up by refrigerator cases (nothing would last long otherwise since preservatives weren’t allowed). Though I never bought anything there — and probably wouldn’t today — I had no doubt about their authenticity. Can’t say I get the same warm feeling from reading about a private equity owned chain merging with another (though of course I wish them well).
I’ve been fortunate to live in a market where both Sprouts and Sunflower have been operating for several years. After shopping both, I find the store’s similarities are probably greater than their differences. Good candidates for a merger in that respect.
I generally perceive the Sprouts/Sunflower concepts fall somewhat closer to Whole Foods than Trader Joe’s. TJ’s offers much narrower fresh produce and meats, while WF is more upscale and exclusive.
Sprouts and Sunflower both carry large assortments of high-margin nutritional supplements and both feature a bulk foods section front and center. Since Sunflower is located nearer, I have more experience with its PL products than Sprouts. In general, they are nicely packaged and competitively priced. Sunflower frozen crinkle-cut sweet potato fries were a recent hit in our household.
Like Trader Joe’s, both Sprouts and Sunflower have exhibited the confidence to use the corporate banner as the PL brand. There are few mainstream national brands visible on the shelves (unless you count Linda McCartney prepared foods or Annie’s packaged items).
For me, these traits position Sprouts as an alternative choice versus mainstream supermarkets — more price competitive than Whole Foods, and larger and with greater variety than Trader Joe’s. Time will tell if this is a large enough niche.
It is a direct competitor to both Whole Foods and Trader Joe’s. Now Sprouts has greater reach, better positioning and can compete directly on the same level with Whole Foods and Trader Joe’s. As they ramp this up and increase their house branding, we can expect to see prices fall as these grocers start to slug it out in a more equal landscape when they compete for share of each consumer’s wallet….
This has the potential for a solid fit, as the chains carry a similar mix of customers, who have similar Behavior and Attitudes. Based on the BIGinsight Monthly Consumer Survey, these consumers spend more than average consumers do on groceries each month, value Sprouts and Sunflower for “healthy foods, are well-educated, married, and working.
However, when they are not shopping Sprouts or Sunflower, you’ll likely find them in a Mass Merchants’ store. The Whole Foods and Trader Joe’s family of customers, when not shopping at those locations, are found in traditional grocery stores. Their shopper base has a household income that is +35% higher than Sprouts/Sunflower.
Successful scalability is the key for the merged companies.
More Discussions
How Timely Is the Planned Lowe’s Website Renovation Focusing on Personalization?
Is Lowe’s being timely with its website reno, and is it right to be placed as…Should Costco Be Opening Members-Only Gas Stations?
Is this the right move for the warehouse club?As Boomers ‘Age Out of Peak Purchasing,’ How Can National Brands Retain Interest With Gen Z?
According to a recent First Insight study titled “Is Gen Z Still Choosing Your Brand,” while…
I don’t see huge benefit. Both are minor league players that are just a fraction compared to Whole Foods and TJ’s. In fact, Sprouts has been closing stores in markets such as Austin, Texas. Their sales per square foot is far below the standard set by Whole Foods and TJ’s. They will always get stuck with B locations because their sales can’t pay the rent of the A locations. Private label? WF and TJ’s have already taken that to a new level.
The benefit of the acquisition is buying time.
Trader Joe’s has a special aura that keeps their customers coming back; and more importantly, spreading the word with an almost cult-like following. The areas without a Trader Joe’s have groups “cropping up” filling petitions begging them to open close to them. I don’t see that with Whole Foods customers. While this can become a three horse race, I see Trader Joe’s pulling ahead. Let the games begin.
Sprouts falls between WF and TJ’s. They offer quality products at lower prices than WF, but are higher priced and more outside brand focused that TJ’s. It’s a good model. If they are going to lower prices, they need to move towards more private label products. If they are looking to attract more WF shoppers, they need to emphasize their organic credentials.
The organic food retail industry is very interesting and will provide a lot of consumer information for years to come. I say this from the observation that this is seen by many as an electable higher cost of living by the consumer. In the time of plenty, the decision to engage in the expense of this lifestyle was fully attainable by many consumers. As the economy of 2004 evolved into the depression of 2007 that still lives today, I gave no second glance at these retailers as survivors. Now I am watching what appears to be the growth of a legitimate retail and manufacturing industry. The company mergers and acquisition of private labels as a means of expanding into the marketplace may be considered only in the presence of an economically stable marketplace, which the organic foods market continues to demonstrate. I wonder what parallels exist between the organic foods industry and the cosmetics industry?
When I was growing up, the local organic foods store — I think it was actually called “health” foods — was a postage stamp sized storefront with most of the space taken up by refrigerator cases (nothing would last long otherwise since preservatives weren’t allowed). Though I never bought anything there — and probably wouldn’t today — I had no doubt about their authenticity. Can’t say I get the same warm feeling from reading about a private equity owned chain merging with another (though of course I wish them well).
I’ve been fortunate to live in a market where both Sprouts and Sunflower have been operating for several years. After shopping both, I find the store’s similarities are probably greater than their differences. Good candidates for a merger in that respect.
I generally perceive the Sprouts/Sunflower concepts fall somewhat closer to Whole Foods than Trader Joe’s. TJ’s offers much narrower fresh produce and meats, while WF is more upscale and exclusive.
Sprouts and Sunflower both carry large assortments of high-margin nutritional supplements and both feature a bulk foods section front and center. Since Sunflower is located nearer, I have more experience with its PL products than Sprouts. In general, they are nicely packaged and competitively priced. Sunflower frozen crinkle-cut sweet potato fries were a recent hit in our household.
Like Trader Joe’s, both Sprouts and Sunflower have exhibited the confidence to use the corporate banner as the PL brand. There are few mainstream national brands visible on the shelves (unless you count Linda McCartney prepared foods or Annie’s packaged items).
For me, these traits position Sprouts as an alternative choice versus mainstream supermarkets — more price competitive than Whole Foods, and larger and with greater variety than Trader Joe’s. Time will tell if this is a large enough niche.
It is a direct competitor to both Whole Foods and Trader Joe’s. Now Sprouts has greater reach, better positioning and can compete directly on the same level with Whole Foods and Trader Joe’s. As they ramp this up and increase their house branding, we can expect to see prices fall as these grocers start to slug it out in a more equal landscape when they compete for share of each consumer’s wallet….
This has the potential for a solid fit, as the chains carry a similar mix of customers, who have similar Behavior and Attitudes. Based on the BIGinsight Monthly Consumer Survey, these consumers spend more than average consumers do on groceries each month, value Sprouts and Sunflower for “healthy foods, are well-educated, married, and working.
However, when they are not shopping Sprouts or Sunflower, you’ll likely find them in a Mass Merchants’ store. The Whole Foods and Trader Joe’s family of customers, when not shopping at those locations, are found in traditional grocery stores. Their shopper base has a household income that is +35% higher than Sprouts/Sunflower.
Successful scalability is the key for the merged companies.