Phoenix-based Sprouts Farmers Market BB #:168563 is downsizing its square footage, while focusing on more local and unique options in fresh produce.
During the company’s fourth quarter earnings call last week, executives said the company is backing off of the larger store concept it had introduced several years ago in favor of stores that are about 20 percent smaller, around 23,000 square feet.
Amid those plans, Sprouts is closing 11 locations and opening 30 in 2023. The company has had these store closures in mind since early 2020, said CFO Chip Molloy.
“Back in early 2020, we considered closing some underperforming locations as we shifted our store growth strategy to a smaller, more productive prototype,” he said during the company’s earnings call. “We consciously decided not to close those stores as the pandemic struck, so our communities would continue to have access to fresh, healthy groceries.”
The stores planned for closure are about 30 percent larger than the current prototype, and “generate negative four-wall cash flow.”
CEO Jack Sinclair said Sprouts has improved its business financially over the past few years through a few different strategies.
“We estimate about two-thirds of this was through decisive actions to promote more effectively,” he said. “The remaining one-third were operational improvements such as less shrink from an expanded and well-placed fresh supply chain and systems that improved our ordering and in-stock positions.”
Sprouts has opened multiple new distribution centers, reducing the mileage fresh produce has to travel to reach stores.
“More than 85 percent of our stores are within 250 miles of our distribution channels, up from 20% in 2019,” Sinclair said. “This year we’ll be focused on investments at our current DCs, replacing our Southern California DC, and expanding our Texas DC to account for growing demand while adding ripening rooms to our Arizona, Texas, and Southern California DCs to deliver even better produce to our customers.”
Local produce also is a key focus for Sprouts, Sinclair said.
“We doubled our local produce sales in 2022 with more than 11 percent of our produce sales now from local growers,” he said.
The expansion of the program has led to Sprouts launching new initiatives, like Rescued Organics.
“We believe our relationships with farmers, scale, and expertise in fresh produce enable us to own and grow this space,” he said. “That advantage led us to the launch of a Rescued Organics program in California, benefitting our farmers and customers and helping to combat food waste.”