Sprouts May Expand Beyond 1,200 Stores, CEO Says

Sprouts Farmers Market Inc., the natural-foods retailer that went public last year, may exceed its goal of opening 1,200 U.S. stores in the next decade and a half, the chain’s chief executive officer said.

“That was the low end, the most conservative estimate,” CEO Doug Sanders said in an interview at an Atlanta-area store that opens tomorrow, part of its growth in the Southeast. “We’re able to appeal to a much broader customer.”

Sprouts, which now has about 170 stores selling mostly natural and organic foods, has targeted traditional supermarkets such as Kroger Co. and Wal-Mart Stores Inc. by undercutting their produce prices by as much as 25 percent. The company also is competing with natural-food stores such as Whole Foods Market Inc. and Trader Joe’s Co., capitalizing on the growing appeal of less-processed groceries.

Sprouts, based in Phoenix, may increase its store count by as much as 14 percent a year, which means it would reach the 1,200 stores it forecast within about 15 years, Sanders said. Expanding to as many as 1,500 stores isn’t out of the question in that time, he also said. That growth will come from building stores rather than through takeovers, he said.

“We just don’t have anything under review from an acquisition standpoint,” he said. “When you think about our box size and some of the industries that are in transition right now, whether its books or office supplies or electronics, we fit in a lot of those boxes, so I think there is going to be a lot of opportunity for us to expand organically.”

Whole Foods, based in Austin, Texas, is buying more real estate, too, and recently purchased closed Dominick’s locations in Chicago.

Sprouts Founding

Sprouts was founded by the Boney family, who started selling fruit in 1943 in Southern California and later opened stores under the Boney’s and Henry’s Marketplace names. In 1999, the family sold Henry’s to Wild Oats and then three years later opened the first Sprouts location.

Apollo Global Management LLC combined the company with the Henry’s chain in 2011 and acquired more than 30 Sunflower Farmers Market locations in 2012. The private-equity firm owns 30 percent of Sprouts after taking it public last year. The shares have advanced 73 percent since the initial offering in July. Sprouts declined 0.4 percent to $31.05 at the close in New York.

Tomorrow, Sprouts will open the first of four stores planned for Georgia, part of the 24 total locations it plans to open this year. Sprouts expects to have more than 190 stores by year’s end -- about half the number of Whole Foods’ locations. Sprouts operates primarily in the Southwest and has no immediate plan to expand into the Northeast, Sanders said.

‘Broad Appeal’

“Because we have such a broad appeal, we’re able to open more stores in a market than your typical natural-foods store,” Sanders said.

More grocers are selling organic and natural goods as Americans increasingly seek healthier food. Wal-Mart recently started selling Wild Oats organic fare, including beans, ketchup, spices and oil. Cincinnati-based Kroger’s line of Simple Truth natural and organics, which it introduced about two years ago, will be a billion-dollar brand in less than two years, Chief Financial Officer Mike Schlotman said last month.

Sprouts is undercutting Whole Foods’ prices by about 13 percent, according to a Bloomberg Industries study of 148 brand-name items. The chain has taken market share from Whole Foods, Kroger and Bentonville, Arkansas-based Wal-Mart since 2011, according to a report by New York-based ITG Investment Research last month.

Revenue at Sprouts jumped 26 percent to $722.6 million in the first quarter as it opened new locations and same-store sales gained about 13 percent. Net sales will increase as much as 20 percent this year to about $2.93 billion, the company forecasts.

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