Sprouts Touts Benefits of Deli-Forward Prototype

Sprouts Farmers Markets’ newest store format is generating a 4% to 5% increase in deli sales penetration over its previous layout—without a significant change in assortment.

“The consumer verbatim comments are they ‘cannot believe how much more product you have in the store.’ The reality is, it's the same product,” Brad Lukow, Sprouts chief financial officer and interim co-CEO, said during a presentation at the BMO Capital’s Farm to Market in New York. “Yes, we’ve continued to enhance and develop new items, particularly in the ready-to-eat category, but it’s all about the merchandising and the experience in the store.”

Sprouts debuted the new prototype at five locations last year. The model helps to showcase improvements in assortment made over the previous years, such as salads, meal solutions and fresh squeezed juices. The new design features an island deli showcasing that merchandise around its perimeter, as well as new merchandising areas for fresh meat and seafood. To make room for the new layout, prep work for those departments that previously was done in view of the customer has been moved behind the scenes.

This change, Lukow said, has helped to boost Sprouts’ equity as a mealtime destination, particularly for younger shoppers, while increasing profits as high-margin deli accounts for a greater percentage of the store’s overall sales mix. Stores are also opening to greater productivity than previous models.

“The experience really takes it to a new level,” Lukow said, according to a transcript provided by Sentieo. “We’re really presenting to the consumer that we are absolutely in the game of mealtime with the seating area in the store, and the younger generation millennials are much more attracted as compared to our previous format. And so we're seeing that resonating very well at particularly 12 o’clock, 5 o’clock time frames. So not only our average weekly sales stronger consistently in each of the new [prototypes] that we have out there, but also the margin mix is stronger because of the mix of what we’re selling is better than the previous model.”

Sprouts expects to be operating 28 stores by the end of this year utilizing the new prototype and by 2020, all of its new stores are expected to open with the layout, Lukow said.

“Most consumers today don’t decide on what they’re having for dinner until they’re on their way home,” Lukow said. “And now we've got great solutions to pop into the store, either [to] eat in-store or take it home and heat it up, and you've got a great-quality meal with fresh, clean ingredients, which is a huge differentiator versus most of our competitors, and at great prices.”