Sprouts 'exposed' as conventional promotions popped, CEO says

Sprouts Farmers Market CEO Amin Maredia on Thursday blamed the company’s sudden sales shortfall on having cautiously reacted to deepening promotional price activity from conventional supermarket competitors spooked by sustained price deflation.

“We got exposed a little bit,” Maredia confessed at the Goldman Sachs Retailing Conference in New York, where a big topic of conversation was Sprouts’ downward revision of sales expectations announced earlier this week.

Maredia said supermarket competitors beginning in late June moved to spark volume as prices dropped on meat and pork by getting more aggressive with promotions — primarily front-page ads and in-store specials — sparking increasingly intense competitive responses.

Sprouts, which relies more heavily on perishables as a percent of its overall sales mix than conventional competitors, proceeded into the melee more slowly than most, although Maredia said the company was now “in the zone where everybody is very aggressively priced.”

“[For] the retailer that started it, [getting more promotional] is a sure, short term gain of buying some traffic until everybody else gets into it, because our industry has always been very competitive and no one lays down on price,” he said.

“You can’t react overnight because you have a lot of commitments and promotions in the near term, so we got exposed a little bit,” he added. “But I think we’re back in the saddle and pushing hard and that’s where we sit today.”

Maredia said conditions were especially competitive in Houston, where regional and national players are battling. He declined to name the specific competitor but said one conventional operator “who leads in many ways with meat,” triggered much of the industry’s promotional battles.

“[Promotions] deepened in meat,” he said. “It was, ‘Buy one, get one free, buy one get two free, buy one get three free.’ At some point it’s not a productive process.”

Maredia said traffic at Sprouts dipped considerably until it was able to respond more competitively, explaining how comparable-store sales for the current quarter are expected to be flat vs. expectations of 3% to 4% growth announced only weeks earlier.

According to InfoScout, a technology company that studies consumer receipts, Sprouts was also experiencing a lower average ring and fewer items per basket in August as compared to August of 2015.