Sprouts bullish on private label strength

Despite a unique balance that sees 60% of purchases come from the perishable side, predominately non-perishable private label offerings have become key revenue drivers for of Sprouts Farmers Markets, officials said.

“We started private label about four years ago as about 5% of our overall sales,” Amin Maredia, CEO of the Phoenix, Ariz.-based Sprouts said during a presentation at the BMO Capital Markets Farm to Market Conference on Thursday in New York.

“But as I mentioned today, 60% of our sales in the store are on the perishable side of the business, which has limited amount of private label in it.”

Nearly 50% of Sprouts baskets arrive at checkout carrying one or more private label items. The product line is on pace to garner $500 million in revenue by year-end, which would account for 12% of total sales.

“When we look at our overall sales today, we've gone [up] from 5% to 11% [across the] overall store, but certain departments of this store are between 15% and 20%,” said Maredia during the event.

He pointed to packaged grocery, dairy, and frozen as areas that are actively expanding private label’s footprint.

“The growth in private label has not only been by more items in the basket but it's by new trial,” said president and COO Jim Nielsen. “So, the outlook is good, but we're very objective about the business, it's not just about pure growth of private label penetration. It's about the balance for what the consumer wants.”

The success of private label has helped facilitate 40 straight consecutive quarters of positive comparable sales.

In the face of 3% deflation during the first quarter ended April 2, Sprouts still managed to notch 1.1% comps as total sales rose 14% to hit $1.1 billion. Net income remained steady at $46 million but in-store traffic ticked upwards by 0.6%.

Along with the positive growth being generated by the store’s private label, both executives believe that their staff and the company’s training methods have helped keep the brand strong during times of hardship for the industry at large.

“Last year we promoted at the store level almost 20% of our team members,” said Maredia during the presentation. He called employment opportunities at Sprouts a career as opposed to just a job.

We believe that one of our biggest points in difference is our people,” said Nielsen during the presentation. “So we made a very conscious business decision to invest more into training.”

Nielsen expressed that in a store that relies so heavily on produce and perishable items-especially during a period of significant deflation- knowledgeable and helpful  sales staff are key to keeping the numbers trending upwards.

“You sell natural food,” he added. “You can’t offer natural foods on the shelf.  We’ve got to educate our team members about the products and help them connect the products to the individual to help them along that happy, healthy journey. “