How Sprouts uses innovation centers to manage a smaller store footprint

Last year, Sprouts Farmers Market made the move to close all of its larger stores, so that its entire network fits the company’s smaller 23,000-square-foot format.

Floor space management is now critical. So how has the Phoenix-based retailer handled the reduced footprint? When asked about it during Sprouts’ fourth quarter earnings call last week, CEO Jack Sinclair pointed to an innovation center located at each location. The centers track sales of all products, and those products that are performing poorly essentially get tossed.

“It is creating this treasure hunt of new items coming into the store,” said Sinclair. “And the discernment from our customers in that space is something that I think we are doing there that is appealing to us.

“But effectively we got a little bit of an increased skew count because of the innovation center. And our business is all about broad assortment. It’s really important that we don’t compromise that assortment going forward. So we are always trying to get more into stores, rather than less.”

Which product areas are performing well with the smaller footprint? Frozen foods have been one of the top sellers, Sinclair said, in addition to prepared meals, which have been a point of emphasis under the new format. Plant-based dairy has also been a star.
On the other hand, plant-based meat has not taken hold as much as store execs thought it would.

Related:Sprouts Farmers Market targets growth via loyalty, private label

The cost of loyalty

Sprouts also plans to allocate $15 million in 2024 to build out its first robust shopper loyalty program. Not all of that budget will be put into the program as there will also be infrastructure and IT investments, Sinclair said.

Of course, Sprouts expects the loyalty platform to bring in a wealth of data.

“We certainly believe that understanding our customers more…trying to drive a larger share of wallet of our target customers will provide growth for us in the future,” said Sinclair. “If we are going to be a really great specialty grocer, we’ve got to understand that customer even better than what we do at the moment.”

Looking after its own

Sprouts Farmers Market has been experiencing continued success with its private label brand, and that growth is expected to be ongoing.

“We’re really pleased with the way the Sprouts brand has been evolving and developing over the last few quarters,” said Sinclair. “We’ll see it grow. We will continue to launch products. We’re becoming less commodity focused on the items that we sell so that everything we are selling is differentiated.”