Customer engagement, personalization keys to Sprouts Farmers Market’s growth

Sprouts Farmers Market is working to boost customer engagement as it looks to entice its most-loyal customers to shop more often and put more items in their carts when they do, the specialty grocer’s executives told analysts Monday.

For the quarter ended April 2, Phoenix-based Sprouts reported same-store sales growth of 3.1% and net sales of $1.7 billion, a 6% jump from the year-ago period. Sprouts’ first-quarter gross margin was 37.5%, up about 20 basis points compared to last year.

The health-focused grocer opened eight new locations during the quarter, closed one store and acquired two previously licensed stores, for a total of 395 markets in 23 states. The grocer plans to shutter 10 more stores during the second quarter.

In March, Sprouts announced it would close a total of 11 unprofitable locations, all of which are 30% larger than the grocer’s current preferred footprint. The retailer said it remains on track to open 30 new stores in 2023. Sprouts’ real estate pipeline includes 90 approved new stores and 60 executed leases, CEO Jack Sinclair said, adding that the company intends to reach 10% annual unit growth by 2024.

For the full year, Sprouts said that despite an uncertain consumer environment, it expects sales growth of 5% to 6% and same-store sales growth of 2% to 3%.

Sinclair revealed that 60% of Sprouts’ business comes from high-frequency customers.

“Our goal is to drive our current core customers to shop more often and to encourage trials from new customers who are also within our target audience,” he said, according to a transcript from financial services site Sentieo. “We will drive this growth through customer engagement. We’re driving customer engagement in our stores as a foundation focus.”

Sprouts’ customer-engagement efforts are multi-pronged and include a renewed focus on service, ramped-up sampling program—particularly of store-brand items, increased checkout speed, expanded omnichannel offerings, and data-driven media that targets shoppers with customized marketing, he said. Eighteen percent of Sprouts’ customers now provide their shopping data to the grocer, the company said, adding that it is still in the “early innings” of personalization.

For the first quarter, e-commerce made up 12.2% of Sprouts’ sales. The grocer recently revamped its website design and said its current partnerships with Instacart and DoorDash are performing well and have brought new shoppers to the brand.

“The way we’re thinking about e-comm is very much on an omnichannel basis, that the customer will choose how they want to transact with Sprouts,” Sinclair said. “The thing that’s encouraged us about the e-commerce growth is that, in a grocery environment, it is relatively easy for people to buy from whomever they feel like. And the fact that they can only get the assortment from Sprouts, that we sell, gives me some confidence that customers are navigating their way to our curated assortment in a very positive way.”