Cancel OK

Produce boosts Sprouts’ successful ad shift to digital 

Rather than relying completely on being the lowest price promotion,. Sprouts plans to target ads on differentiated supply, like this local strawberry promotion.

Phoenix-based Sprouts Farmers Market BB #:168563 reported second quarter earnings on July 29, highlighting the company’s strategy to drill down on more effective promotions to core consumers.

While many retailers backed off ads during the height of COVID-19 grocery shopping surges, Sprouts had already planned to shift some of its ads to digital outlets. This proved to be a great time to make the shift, said CEO Jack Sinclair

The company started shifting marketing spend to digital, social, radio, and – for the first time – television on core segments of the company’s customer base.

“In the past, our heavy reliance on print ads kept us from optimizing our connection to the customers that our brand and experience resonate with the most,” he said. “To bring this point home, in June 2019, we sent out 110 million print flyers of our weekly ad. In June of 2020, we had 125 million measured digital impressions of our weekly ad. And we were able to achieve a significant 1,800 year-over-year increase in digital impressions of brand and promotional content by reallocating the saving from eliminating print.”

Sprouts also is shifting away from price in ad strategy.

“Our promotions are starting to become more around storytelling,” Sinclair said. “Moving forward, we’re promoting what we are known for healthy differentiated products and multiple varieties of produce.”

But that doesn’t mean the company isn’t taking advantage of opportunities, said CFO Denise Paulonis. While many retailers were pulling back on promotions due to supply issues experienced during pandemic panic buying, Sprouts took a more targeted approach.

“We were able to accelerate our planned shift from print to digital for our weekly ad, resulting in a reduced number of items on ad and more sales at everyday retail prices,” she said. “As well, our produce team was able to procure excess products in the marketplace at great prices.”

Digital ads also are more nimble, Sinclair said.

“Produce is still promoting fairly aggressively,” he said. “But we’re being much more thoughtful about items we’re putting it ads…and taking advantage of a fairly volatile supply situation. Because we’re doing a digital ad, you can make changes right up until the last day almost, in terms of planning this.”

Grocery pickup also grew rapidly this quarter, though home delivery still is preferred by Sprouts customers. The company said digital orders are up 500% compared to last year, and made up about 12% of sales.

Sinclair also commented on the expansion of deep discounter Aldi Inc., particularly into Sprouts’ home turf of Arizona.

“I’ve competed with Aldi all my career in all sorts of different guises, and they’re a very clear competitor in many places,” Sinclair said. “For us, here at Sprouts, I see them as less of a competitor and in some ways the driving of traffic that comes from it might even help us a little bit.”

Other quarterly financials:

  • Net sales of $1.6 billion; a 16% increase from the same period in 2019
  • Comparable store sales growth of 9.1% and two-year comparable store sales growth of 9.2%
  • Net income of $67 million and adjusted net income(1)?of $70 million; compared to net income and adjusted net income of $35 million from the same period in 2019
  • Diluted earnings per share of $0.57 and adjusted diluted earnings per share(1)?of $0.59; compared to $0.30 diluted and adjusted diluted earnings per share from the same period in 2019

Read the press release here.

 

Pamela Riemenschneider is the Retail Editor for Blue Book Services.