Sprouts Farmers Markets, Inc., overcame high cost deflation to post a successful first quarter and the company can attribute some of that to a revamped focus on the deli department.
Sprouts saw sales reach $1.1 billion — a 14-percent growth driven by comp sales growth of 1.1 percent — despite high cost deflation.
“While cost deflation of three percent was the highest we have experienced as a public company, we saw modest improvements throughout the first quarter as produce deflation eased toward the end of the quarter,” said CEO Amin Maredia. “On the perishable side, despite the deflation, we continue to see strong tonnage growth, which was the strongest increase we have seen since Q4 of 2015 and our fresh team continues to make solid progress in our expanded deli department.”
Maredia said the company is on track to launch its enhanced deli program in 50 new and existing stores this year, with nearly half of them implemented in the first quarter. This new approach includes a full-service case of freshly prepared proteins and sides, a salad bar, fresh juices and soup stations.
“We continue to drive further innovation in ready-to-eat offerings in deli to provide a convenient shopping experience for our customers and remain excited about new items going into the stores over the next few months,” Maredia said.
The company says it is also improving ingredient standards in its grab-and-go items while enhancing its meat and seafood departments through service, product enhancement and merchandising based on consumer trends and shopping preferences.
“We're looking at it and sort of we're seeing two things is the stores where we're expanding and putting in incremental deli initiatives,” Maredia said. “We're starting to see good volumes and those volumes are continuing to ramp in the first quarter. We continue to see meaningful increases sequentially quarter-over-quarter in that area. So what we've learned is it's a business that builds over time because customers are getting used to, now you have expanded that product into your stores.”
Jim Nielsen, Sprouts’ president and COO, said the initiatives have resulted in balanced growth between basket and transaction. The company has seen improvement in the number of new customers and also in basket as well.
“The only other thing is we get good consumer data, our customer service data, the responses we're seeing there. The customers listing us as the primary grocers for deli has improved 700 basis points from just May of 2016 to March of 2017,” Nielsen said. “So, not only is it being reflected in the sales growth, tonnage growth, but we're getting favorable consumer response from our customer service data standpoint.”