Sprouts Farmers Market Inc. (SFM), one of Whole Foods Market Inc. (WFM)’s fastest-growing competitors, is undercutting the prices of its larger rival by about 13 percent, according to analysis by Bloomberg Industries.
A basket of 148 brand-name items, including Kashi cereal, Talenti gelato and Applegate deli turkey, is $691.92 at Sprouts and $780.64 at Whole Foods, according to a study led by Jennifer Bartashus, a Bloomberg Industries analyst in Skillman, New Jersey. The difference stems largely from Sprouts’ use of promotional discounts -- something Whole Foods generally shies away from. If sale prices are excluded, Sprouts is only about 2 percent cheaper than Whole Foods.
“Sprouts is being very aggressive, especially in produce, on being a value-oriented organic retailer,” Bartashus said in an interview. Whole Foods may “need to consider changing their strategy around sale prices.”
As natural and organic foods go mainstream, Whole Foods has already been lowering its prices to appeal to more value-conscious shoppers. The Austin, Texas-based grocery chain is especially focused on reducing the costs of fruits and vegetables. Still, concerns about mounting competition from both organic-food sellers and traditional supermarkets have taken a toll on the company’s stock. Earlier this month, Whole Foods shares fell the most in more than seven years after profit growth stalled and the company cut its forecast.
“We still have work to do in certain perishable areas on price,” Co-Chief Executive Officer John Mackey said on a conference call at the time. “That’s where we’re going to be focusing going forward on pricing.”
Sprouts’ non-sale organic produce was about 22 percent less expensive than at Whole Foods. This part of the analysis considered foods such as broccoli, tomatoes, bananas and cucumbers. Whole Foods wasn’t the most expensive in every category, though. Its non-sale breakfast foods and health items were less costly than Sprouts items.
In addition to Sprouts, Fresh Market Inc. also is going after Whole Foods. The Greensboro, North Carolina-based chain posted a first-quarter net sales gain of almost 18 percent today. Sales reached $431 million in the period, topping the $421.2 million estimated by analysts.
Sprouts, which has more than 170 stores, is focused on attracting shoppers who are looking for a deal. Though it’s coming from a smaller base, the Phoenix-based grocer is growing much faster than Whole Foods. Sprouts said on May 7 that first-quarter revenue rose 26 percent to $722.6 million. Its same-store sales climbed almost 13 percent.
“Pricing is always top of the mind,” CEO Doug Sanders said during a conference call after Sprouts reported earnings.
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