Food, Glorious Food: Innovation and Opportunity in the Grocery Sector

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Spencer Levy
I'm Spencer Levy and this is The Weekly Take. Three words; Grocery, Anchored, Retail. We've been discussing and debating this asset class all year, and now we're going to the store with a grocery retailer that's on the move. On this episode, we return to Las Vegas, site of the 2022 ICSC Recon Convention, to learn more about a growth- oriented grocery chain, with lots more than food on its shopping list.

Dave McGlinchey
I've worked in food retail most of my life, and I would say not only is it the most fun place I've worked before, but it's just so different. We try and do what other people don't do.

Spencer Levy
That's Dave McGlinchey, the Chief Strategy Officer for Sprouts Farmers Market, which has expanded to nearly 400 locations around the country. For his part, Dave spent more than 25 years in retail, primarily in the grocery space, building new stores, new formats and new business for a variety of companies.

Brandon Famous
Why so many retailers like grocery- anchored is because effectively, you're getting people coming back two and a half, three times a week, and that's still very, very important for the co-tenants of grocery.

Spencer Levy
And that's Brandon Famous, an Executive Vice President with CBRE’s Global Retail Platform. Brandon specializes in representing retailers in site acquisition and expansion. Over the course of his decades-long career, he has completed more than 2,000 retail lease transactions, totaling more than 20 million square feet of space around the world. Coming up, a conversation about a retailer that's focused on growth, experience, and a commitment to efficiency and sustainability in its business practices and its real estate strategy. Sprouts Farmers Market. That's right now on The Weekly Take.

Spencer Levy
Welcome to The Weekly Take. And we are joined today by two terrific retail experts, one a long time friend of mine, Brandon Famous. Brandon, great to see you.

Brandon Famous
Great to see you, Spencer. It’s been a long time.

Spencer Levy
It's been a long time. And Dave McGlinchey. Dave, thank you so much for joining us.

Dave McGlinchey
Thanks for having me. Appreciate it.

Spencer Levy
Dave, let's go into what Sprouts is – the brand – because I don't think all of our listeners, particularly maybe in the Northeast, don't know who we are. Tell us a little bit more about that.

Dave McGlinchey
Yeah. First, I'll tell you, I've been in this business for a long time and it's my favorite place I've ever worked, and it's because we have this higher purpose. So we're trying to bring healthy living across the United States. We're very fresh food focused. I think we're experts in produce, or low price in produce, which is very unusual, and with this kind of affordable concept of healthy food. And we're a growing brand. That's an exciting thing to be part of.

Spencer Levy
But it's everything, I hate using this phrase, and from soup to nuts. But you can get full meals there. It's meat, fish, cheese, everything.

Dave McGlinchey
Yeah, we have a terrific meat program. Produce, deli, meals have been growing like crazy, and we prepare meals in the store, which is great, but you can get vitamins, groceries, dairy, etc. So it's a full grocery shop, but we're typically a second shop, because we don't sell Tide and Bounty and Frito Lay, etc..

Spencer Levy
But most of it's local, or you try to make as much of it local as you can.

Dave McGlinchey
Yeah, absolutely. Like I said, I've worked in food retail most of my life and I would say, not only is the most fun place I've worked before, but it's just so different. We try and do what other people don't do from a product point of view, from a team member point of view. One of our core values is we love being different. And part of that is, you know, we don't want to carry the same items that Kroger or an Ahold or an Albertsons would carry, is we want to be something very different, more focused on health and wellness and healthy lifestyle for people. And I think we have terrific team members in the store that make the store come to life and I think are a great asset to what we do every day.

Spencer Levy
Well I think Brandon, the way that was just described by Dave, about having something different and having something cool. I don't know if you use the word cool, but I'm gonna use the word cool.

Dave McGlinchey
I'll take it.

Spencer Levy
But I think it leads to the shopping experience and that's really the fundamental change I think that we've seen in the last decade or so, where stores that really focus on a differentiated experience are those that are separating themselves from the pack. What do you think, Brandon?

Brandon Famous
That's a good point, Spencer. And one of the things that's what makes Sprouts so great is that, you know, we walk in and meet with landlords, property owners. It is a different offering. And to that point, the experience with it. And when you're talking with Sprouts, when you're able to do a deal with Sprouts, it really leads to the other co-tenancy like minded type retailers that go into the center. So you're getting away from what was the old school strip center or the old school power center. And now they're able to recreate, reimagine the centers that in many cases in today's world need to be reimagined. So again, it's a unique offering for many, many landlords.

Spencer Levy
If you go to, like, old school retail, you talk about co- tenancy clauses, you have both a good co- tenancy, people you want to be with, and you have the bad co- tenants. Nobody ever wanted to be next to a bowling alley as an old school example. But what we're saying here is that people want to be near you or you want to be near others, not because of their products per se, but because of their values. Is that a fair way to put it?

Dave McGlinchey
Yeah, and I think there's definitely cohesion around. So people who have the same, call it profile of customer, or a profile lifestyle. We just had a great meeting with the folks at F45, and we're so aligned in what we're trying to do and the type of customer we’re going after. Slightly more affluent, super health conscious, right? They're a gym, and we sell health food and supplements and we think there's some business we can do together. But tenants like that, I think they just bring more to the center that's not the same. Actually, one of the examples we're doing in a coffee shop was, you know, the same coffee shop that's in every supermarket. We don't want to do things like that. We want to do things different. So having more unique offerings in the center is terrific, I think.

Spencer Levy
One of the things that we talk about a lot, and you guys don't have this issue because you're big enough now that you actually have good credit, but many of these smaller retailers might not. And we have this balancing act, what we call, between credit and cool. And how do you look at that?

Dave McGlinchey
Yeah, we're super fortunate. So we made the Fortune 500 last year, which was a big deal, right. And for us, is I think we have the benefit of, we're a publicly traded company, but we’re also, like internally, we feel like a startup. You know, it feels like you're kind of an entrepreneur working at our company, which is very different than a lot of other places where I've worked, where it's just, you know, every day is kind of the same and you're kind of, you know, doing the same as other people.

Spencer Levy
Well, a prior guest that we had on the show was the Chief of Real Estate for Allbirds, which is a company that makes shoes and apparel. But I mean, I think I could have ripped a page out of their corporate guide and stuck it on to Sprouts because it's so similar. But I think what it speaks to is not just how the consumer is evolving to care more, not about the goods, but about the overall value proposition for the company. I think, by the way, it's the same thing for office employees as well. Brandon, what do you think?

Brandon Famous
Yeah, I agree with you. I mean, it's, you're looking at a consumer now. You know, obviously we can talk about millennials, Gen Z, etc.. But again, when you're going in to what Sprouts’ offering is, it's that fresh. It's able to touch it, to feel it, smell it, kind of thing. And it's not just cookie cutter, which is all part of the experience. Very, very important.

Spencer Levy
Every real estate person I've had on my show will say “Are you in the real estate business”? And nine out of ten say, no, I'm a technology company. No, I'm an information company. So I'm going to ask you, Dave, Dave, are you a grocer?

Dave McGlinchey
No, I would say we're not a grocer. I'd say we're trying to bring healthy living to more places across the US. Less about being a grocery store.

Spencer Levy
So, speaking of grocery, Brandon, you've been in the business a long time. Grocery’s evolved over the last 30 years. How have you seen the evolution of that segment of the market, Brandon, you know, in the last 20, 30 years, bring us to today.

Brandon Famous
Well, great point. It’s actually a great question. It's become more specialized. So you see the likes of Sprouts, of other competitors out there trying to do the same thing.

Dave McGlinchey
I think you either have to be really big, right? Walmart, Target, Kroger, or really specialized. Everyone in that mushy middle is having the hardest time because there's nothing special about them. They do the same as the bigger guys, but they don't have all the efficiencies of being really big.

Brandon Famous
But as much as they change, Spencer, remember this, though. Why it's important, why so many retailers like grocery- anchored, is because effectively, you're getting people, recurring clients. They're coming back two and a half, three times a week, and that's still very, very important for the co- tenants of grocery. So many landlords still look for grocery- anchored strip centers, open- air centers.

Spencer Levy
Well, one of the things about grocery as opposed to, say, an appliance store, is that a washing machine is a washing machine, but a tomato is not a tomato, particularly if you're a cook. And so, do you think that will ever go away? Do you think the Internet is ever going to disrupt your business?

Dave McGlinchey
No. I mean, especially for us, like, fresh food is a huge piece of our business and kind of differentiated fresh, too. So we'll you know, when it comes to stone fruit season or something, we’ll have all of these cool, specialty, you know, plums and nectarines and things like that. So you won't normally order that online, right? You don't see it. But if all of a sudden you try this really cool peacharine, you're like, oh my gosh, this is terrific. So I think the experience of being in a cool store, that in and of itself, and for us too, a smaller store. You know, our new format’s 23,000 square feet. You can get in and out pretty easily. And if you're going to select your own meats and produce and whatever, I really think the customers aren’t going to do that. But will they order Bounty online and Tide and Coke? Sure, because it's everywhere, right?

Brandon Famous
Yeah. I mean, in many ways you almost feel like it's neighborhood grocery, right? Like it's big enough that you have the offering, but it's about the freshness, it's the produce, it's the meats, it's the bakery section. All of that is so key. That's the one thing that I really, really like about the brand.

Dave McGlinchey
And we're always trying to change our assortment, too. So, I mean, the cool thing about our store is like, every week there's something new in the store. We're constantly changing things out. So it's kind of an exploration going on in our store, trying to see what's different.

Spencer Levy
Well, I'm going to use the term peacharine.

Dave McGlinchey
There you go.

Spencer Levy
Because I had not heard the term before, but I'm going to check it out. So let's turn to real estate now, a little bit more, just, granular on real estate. 23,000 square feet is your optimal size, but the typical grocer, I guess we say that the big ones could be 50, 60, 70,000 square feet, but the little guys or the smaller ones could get even small in that. How did you pick 23,000 square feet as your optimal size?

Dave McGlinchey
Yeah. So it's funny, we have a relatively new CEO. He's been with us a couple of years, and early days, he went in and he goes into Southern California, which is some of our earliest stores. And we have all these 16,000, 20,000, you know, 22,000 square foot stores that feel terrific, a lot of energy in them. And the sales in those stores are terrific. And he's like, why are we building these really big stores? We're a farmer's market. We should be more intimate, exciting, etc., and sales per square foot are way better in these smaller stores. So we said, All right, we can do just as much business and offer a better experience, probably, in a smaller store.

Spencer Levy
So you mentioned your sales per square foot and we're talking about traditional retail metrics: The health ratio, the ratio of your sales to your rent, sales per square foot, which you also mentioned. But we now, you know, even though the Internet has not penetrated your segment, I've used the concept a few times, which I call new rent. I'll be very simple, right. If you are a retailer and you are in a particular location and not necessarily a grocer, because grocer doesn't have as much Internet penetration, but say you have 20% of your sales are Internet sales.

Brandon Famous
Right.

Spencer Levy
Your store is not just a place to buy stuff, it's also a billboard. And that billboard has value in terms of the sales in that area. Is that a piece of the economic puzzle that should be part of the negotiation, or is it a bridge too far, Brandon?

Brandon Famous
I think it's a bridge too far because now you're getting into, you know, if I'm understanding what you're theorizing, it's that if it's not just a retail store, but it's also a logistics store, it's pickup. They're buying online pickup. Is that where you're going with it?

Spencer Levy
Well, it's either that or if somebody's sitting in their house and it gets delivered to their homes.

Brandon Famous
Or delivery as well. So you're saying how do you account for those sales?

Spencer Levy
Yes, I'm saying how do you account? And I'm going one step further than that. Not just counting the sales, but I'm saying that if you are negotiating a new lease, should that be part of the lease negotiation?

Brandon Famous
I would tell you, hell no.

Dave McGlinchey
The big thing from a retailer point of view, you say it's your brand, right, and your marketing of the brand and you know, etc.. Less to do with that particular center, right?

Brandon Famous
It's kind of like, you know what, Spencer, you brought this up. It’s these landlords, speaking of tenant rep, the landlords that always try to throw into the net charges they’re marketing, or their promo fund for the center. And all I do is tell them, you want to charge me a dollar a foot or $0.50 a square foot, your promo on the center. We as a company, or our clients, Sprouts as a company, will spend 20 times the amount of money on advertising. Maybe we should get a deduction in our rent for doing that and promoting your center. But they don't buy it and we don't buy it and we end up fighting. But I like it. We get through it.

Spencer Levy
For the record, this is why Brandon is good at what he does.

Brandon Famous
Thanks.

Spencer Levy
So let's talk locations now. I know that most of your product, and if you take a look at your footprint, you had a lot of stuff in, is it California? I don’t know if I’m getting the States right here.

Dave McGlinchey
Yeah, California, Texas, Colorado, Arizona, and now Florida, which was relatively nonexistent five years, and we've been in a sprint and growing Florida.

Spencer Levy
But all of those are what we would call the highest growth, macro growth, right? The most people moving in there. You can include Charlotte, Nashville. I mean, Raleigh. I mean, there's a lot of cities we could include in that. But your sub-demographic – you can't just look at the aggregate number of people, you're also looking for a certain type of person, certain income level, maybe other factors – what are those submarkets look like?

Dave McGlinchey
Yeah. So we have two customer segments that we focus on. Health enthusiasts, which is exactly what it sounds, right? It's someone who lives a healthy lifestyle, really cares about what they put in their body, probably belongs to an F45 or something like that. And then experience seekers, who love the store experience. So probably the anti-Internet type thing, is they love the interaction. They love being in a store. They love seeing new items and are always researching what's the latest diet trend or whatever else. So we look for where a lot of those people live, and some level of density. And then, you know, we say, all right, let's try and carve out trade areas in these areas.

Spencer Levy
Well, let me push that just a touch, because I know that all the areas you've mentioned are the areas that most, not just retailers, but real estate folks, want to go for all asset types. But then I have this concept that we call the difference between CBDs and BBD’s. Central Business District, Better Business Districts. I recognize them that Sprouts is mostly suburban, but Better Business Districts can be in a suburban area, which is a combination of live, work, play, very often near a university, very often near some other driver of this healthy lifestyle. So when I open the door to that, that opens the door to old school cities like Chicago, like New York, like even, you know, you can go further out in the Midwest. I can give you a neighborhood in each of these cities that has those characteristics. Not on your radar or might be on your radar?

Dave McGlinchey
Yeah, so for us, we kind of thrive on fresh food. So in the short-, mid- term is, we have to have a distribution center within 250 miles of where a store is going to be. We don't have one yet in the mid-Atlantic Northeast.

Brandon Famous
But we're penetrating the mid-Atlantic.

Dave McGlinchey
Yeah. So that's one where, as soon as Brandon and I get on our horse and start moving in that area, as soon as we get to a certain number of stores, we will build a DC in the mid-Atlantic, then fill out that market and then go to the next market. And to your point, is Chicago, New York, etc. is on the long term radar.

Spencer Levy
Let's talk about this for a moment, because when we talked about green and healthy lifestyle, and not just looking for the individual but the goods that you sell. Distribution is enormously important because the way that people define green now is changing. It's no longer just, this is an organic, what was the term again, peacharine, but it's also how many miles did it travel to get here? And what means did it use to get here? So are these factors that are now important for you and maybe for other grocers?

Dave McGlinchey
Yeah, for sure. A good example is this 250 miles, right? I mean, we've taken millions of miles off the road because we opened two distribution centers over the past year. So tons of miles off the road, you know, smaller greenhouse emissions because of that. We really thrive on local, particularly in produce. So in-season, we're all about that and about our communities. It's interesting that we just kind of redid our core values and one of them is care – and we say, you know, we care about our team members, the communities, our planet, etc. And we're starting to put our money where our mouth is across the whole spectrum.

Spencer Levy
Let's take a California fruit. It's funny, I grew up in New York, grew up on the East Coast, and Brandon’s a Philadelphia guy, so probably a similar experience. Every time I go to California, the fruit is so much better than the East Coast. You know what I'm saying? I mean –

Brandon Famous
Well, I mean Jersey tomatoes are pretty good.

Spencer Levy
Okay.

Brandon Famous
That’s not a fruit, but –

Dave McGlinchey
Yeah, you know, it's funny you say that. So I'm from Boston, right. And we used to go and look to see corn, right? So any time we went to the West Coast for corn, we’re like, it's like twice the size and like so much better. But the amount of money it cost to ship something from California all the way to Boston, you'd be paying $10 for an ear of corn. I mean, the way produce works, right, is it, you know, goes to California, kind of goes down to Mexico, South America then goes back over to Florida and up the coast. But each area has its own different experience. But we have that level of expertise in the company. We know where to get good product and when.

Spencer Levy
Well, I think the consumer is also getting more savvy because I think the consumer is saying, you know what, I'd rather have the New Jersey tomatoes or the Maryland corn. I'm from Maryland. The corn is really good there, too. And is prepared to not have something. That's really the thing is, is the consumer changing their ability or their preferences so much so to say, you know, it's not season. This is going to come from too far away. I'm not going to eat it.

Dave McGlinchey
Yeah. Yeah. And I mean, part of what we did, too, is we added distribution centers and we actually have local buying teams in each distribution center. So we have a buying team in Orlando that buys local Florida, Georgia when it's in season, etcetera, up the coast. Two in California. So we're trying to get local expertise in each area, talking to the growers and farmers and trying to make everything special and local, which I think makes a huge difference.


Spencer Levy
This is probably the wrong reference, but I remember, oh boy, this has got to be 50, 60 years ago when the fish market, and the guy or the woman would stand out on the coast, and the ships would come in and like literally pointing at what they want. I went to the Japanese version. I was in Tokyo. They actually

Dave McGlinchey
Oh, very cool.

Spencer Levy
It was a very cool experience, like the real deal.

Dave McGlinchey
Yeah.

Spencer Levy
But what you're really doing is the produced version of that, maybe sometimes even with...

Dave McGlinchey
We actually do the same thing with seafood, too. You know, each area has a different seafood supply because of that, right? Because each coast is going to have different product and different levels of freshness.

Brandon Famous
Yeah, but the one thing, I want to touch on that real quick is, you're talking about the quality, the freshness. It's local. It's not expensive.

Dave McGlinchey
That's a great point.

Brandon Famous
Right. So we haven't really talked about pricing or cost for this. That's the benefit of it. So we can really reach across all segments of population. It's not an expensive offering.

Dave McGlinchey
And that's been, like, the heritage of Sprouts since the beginning. I mean, it started in the fifties as a farm stand, right? And it was always low price, high quality produce. And to this day, it's the same proposition.

Spencer Levy
But some of the biggest retailers that are not in grocery, they're known for their logistics prowess. And I think what you mentioned with your distribution centers. So, first of all, I know how many stores you have, about 400. How many distribution centers do you have?

Dave McGlinchey
Seven.

Spencer Levy
Seven of them. And they're sort of strategically located.

Dve McGlinchey
Exactly.
Spencer Levy
Near these areas. Now, do you own yours, or do you lease them?

Dave McGlinchey
Lease.

Spencer Levy
And are these cold storage?

Dave McGlinchey
Yes. So they're all, you know, fresh distribution centers, mostly produce that comes out of them.

Spencer Levy
Okay. Okay. And so this really gets to, I think the key question in retail for the last ten years. Is industrial going to subsume, eat the lunch of retail, putting it in basic terms, or is it a partner? How do you guys look at that?

Dave McGlinchey
I mean, for us, it's a partner, right? I mean, we have a lot of partnerships as a result of, you know, what we need, right. And part of that, and in some instances, we kind of have this hybrid thing, some facilities we run ourselves, other facilities, someone else runs. But I mean, as we need to open more and more of these distribution facilities, is it's all about partnerships for us. Someone has to be really good at handling produce and keeping it fresh or else the consumer loses. So definitely needs to be a partner.

Spencer Levy
Brandon, let's go back to a point you just mentioned before, that this is not a high priced offering. This is something that could really fulfill the needs of people up and down the income spectrum. So you're putting stores in areas that are not as wealthy, that maybe you push people to have a healthier lifestyle. Is that something you think is or should be on the table, Brandon?

Brandon Famous
Oh, it is on the table for sure. They have, they absolutely have stores in those areas. Some of their highest performing stores are in areas that are not necessarily considered, “affluent” or “upper upper income areas”. Remember what Dave mentioned earlier. It's about health enthusiast recreation seekers. That covers all, the whole spectrum of demographic. You don't have to be wealthy just to be a health enthusiast. So yeah, we have stores pretty much across the board in terms of, from a demographic perspective.

Dave McGlinchey
Yeah. I mean, it's interesting. In some places, other health food type stores, they’ll never go because their consumers need to be wealthy and ours don't. And a big piece of that is because we're really well priced on produce.

Brandon Famous
Well that’s what I meant the pricing is, because you can cover that and that's what makes Sprouts even more special.



Spencer Levy
So in terms of the ESG thing we've talked about at some length here, talk to me just a little bit more about some of the co- tenancy, beyond just the values, which I think we all understand. Healthy lifestyle. Any types of retailers that you think, you say, boy, we’d really like to be there?

Dave McGlinchey
Yeah, I think anything that kind of revolves around health, right? We do well when we're around, kind of, fitness facilities, gyms, but we really don't like it because they take a lot of parking up.

Spencer Levy
Okay.

Dave McGlinchey
But small format specialty like an F45 and Orange Theory, those types of things where there's only 25, 30 people in a class and they rotate through, is perfect for what we're trying to do. You know, like you said, someone like an Allbirds I think would be terrific. And REI, I think would be terrific. So those types of retail that bring like minded individuals, I think, are really great co- tenancy for us.

Spencer Levy
You know, I'm not hearing the bowling alley. That was the old school of...

Brandon Famous
Yeah. The bowling alleys. Yeah.

Dave McGlinchey
Yeah. But near universities, we typically do well near universities. So anything that has to relate to that demographic, as well.

Spencer Levy
So now you're all domestic, correct?

Dave McGlinchey
Right.

Spencer Levy
In the U.S.. Have you ever thought about going outside the U.S.?

Dave McGlinchey
Well, it's funny. So our CEO is from Scotland and he brings up every now and again that he thinks we should build one in Glasgow.

Brandon Famous
Of course, yeah.

Dave McGlinchey
But it's not within 250 miles of a distribution center, so I don't know that that's going to happen any time. Yeah. I mean, I think we have plenty of work to do. I mean, we think we could build a thousand stores in the US. So, you know, like you said, we're close to 400. We got plenty of ways to go. But who says we won't be in Canada at some point or, who knows?

Spencer Levy
Well, one of the challenges, I guess, in a lot of these shows that we talk about, where do you put your real estate? I think we've already identified high growth, health conscious, but labor. That is a, probably a key factor, for all of our different types of real estate owners. There ain't much of it. It's scarce. It's expensive. How much is that playing into your decisions?

Dave McGlinchey
Yeah, I'd say a little bit less into the decisions. More, I think what we're trying to do more proactively, right, is we're trying to get higher wages. We're trying to get people more engaged to our team members and our stores because we're a fast growth company. The number of promotions every year is unbelievable. I mean, I want to say it was, you know, 20, 30% of the workforce got promoted in the past year. So, you know, we have a high level of upward momentum in the company. And it's a company you can grow with, which I love.

Brandon Famous
There are labor concerns, Spencer, but really at the heart of it, it's we've got to get the right real estate, and it's, so it's the real estate first. And you, I mean I hate to say it, you figure it out, you worry about the labor later.

Spencer Levy
Well, that's different. I mean, I would just, being directed in the office sector and even the industrial distribution center business, people are saying labor is the limiting factor. And now you may have a 250 mile radius, but you may put it in this town versus that town.

Dave McGlinchey
For sure from a distribution point of view, with that is – we definitely think of, alright, where is the labor force going to come from when we decide on where the location is going to be? Yeah.

Spencer Levy
Now, I think my colleague Brian Reed, who’s one of our producers, visited one of your stores the other day, and he counted up the number of egg varieties you had there. And I think he said they were not ten, not twenty. There were 28 different types of eggs. That's a lot of eggs.

Dave McGlinchey
Yeah.

Spencer Levy
And so, my question is, that's super cool. That's super different. But is that inefficient?

Dave McGlinchey
No, it's a great question. Part of what we try and do is we carry items that other people don't carry, and we do it because we really think our target customers are very intrigued by that. So you think of eggs and part of it's an animal welfare thing, right? So every egg in our shelf is cage free or better, right? And some people want it, you know, pasture raised, some people want omega threes in it. And we have this whole thing around product where it's attributes of a product, right? So if it's organic or keto or paleo or whatever it might be, whatever we think our customers are going to be interested in, we go after it and sometimes it's terrific and sometimes it's a crash and burn, but you move on. So like I was saying earlier, we turnover our assortment a lot. It's because we want to be ahead of trends, not at trend. Which is why I think from a like –

Brandon Famous
That’s a great line.

Dave McGlinchey
Thanks.

Brandon Famous
That is a great line. Ahead of trends.

Dave McGlinchey
So from a real estate point of view, I mean, one of the selling points we think we have is. Number one is, if we're in an area, especially like a new area, we draw from pretty far because no one does what we do, right. It's not like having another X retailer, who, it’s their seventh store in that market. For us it’s something special, and people come from far and wide to try and get what we do because typically we're a second shop, right? Someone goes somewhere and they get their Tide and Coke and Frito-Lay products and then they come to us for, you know, someone has a gluten free allergy and we have more gluten free offerings and categories than anyone else. Or they eat only organic and we have thousands of organic items. It's definitely, I think, a great selling point for us is we do have a really deep assortment, but only where we think it matters.

Brandon Famous
And by the way, you mentioned that they'll go somewhere else with the other stuff. We have no problem going across the street from them.

Dave McGlinchey
Yeah, exactly. Yeah. And sometimes it's great.

Brandon Famous
Yeah. We actually have no issue with that whatsoever.

Spencer Levy
And I bet that many of them want you there.

Brandon Famous
Yeah.

Spencer Levy
Because it makes that, more people go to their offering. So it's a symbiotic sort of relationship.

Dave McGlinchey
Exactly right. Now we need to sell that more.

Spencer Levy
Well, you gave me the word peacharine. I'm going to give you the word symbiotic.

Dave McGlinchey
There you go.

Spencer Levy
You see that? We’re all learning something here today.

Brandon Famous
Yeah, keep that up.

Spencer Levy
So, I mean, one of the beauties of your store isn't just the offering and everything we talked about. It’s the size, the footprint is very manageable in most shopping centers. So you have a tremendous amount of options that many other grocers just don't because they are much larger. So Brandon, from your perspective, I mean, you represent a lot of tenants and they look at lots of grocers or farmer's markets or things of that nature. What's your main pitch when you're walking in the door and say you want a Sprouts versus somebody else?

Brandon Famous
Oh, that's what we talked about for the last half hour.

Spencer Levy
Yeah.

Brandon Famous
I mean, it's really the offering. It's the quality of the product at the correct price in urban environments. Obviously, the size of the space helps us significantly, right. It's very hard to get these big boxes in an urban setting. But really, from Sprouts’ standpoint, when I'm in there selling it, you think about who – this is not a cookie cutter grocer. And for that, it has meaning to landlords, right? We're not that prototypical 50,000 foot box that just goes in there that's selling a little bit of everything. This is a unique offering that brings a great crowd to their center.

Dave McGlinchey
And I would just say we're pretty malleable as far as the types of customers that go in there, right. You don't need to be rich. We do really well in heavy Hispanic areas, heavy Asian areas. It's pretty amazing how well we perform at a pretty wide spectrum of demographics. Not a lot of grocery stores can do that.

Spencer Levy
Well, it's interesting. We had analyzed, years ago, certain types of ethnic grocers, and they actually had tremendous sales per square foot in many of these stores. Their challenges have always been this credit versus cool thing. And we're trying to move the market in many ways to say, look, you know, nontraditional credit is something that you should be looking at if they can have the sales, if they can have the foot traffic. But you have the best of both worlds. You've got the sales and you've got the credit.

Dave McGlinchey
Right

Spencer Levy
So let's ask our final thoughts, wrap up question. 400 stores today, just tremendous offering. Five years from now, looking back, not just the number of stores, but what changes do you see in your business coming over the next five years or so?

Dave McGlinchey
We’ll start with the real estate side. We're shooting for 10% store growth a year. And, you know, we want to kind of saturate our markets, right. And there's a lot of good reasons to do that, right. I think that's kind of the future where we are. I really hope when you're in a California market or you're in Arizona, people know our brand really well, right? So we can open up a store. We don't, barely need to market it because people know the brand and they're really excited about us coming into the community. My hope over the next five years is we can do that for all these new markets we're going into. So, you know, New Jersey, D.C., Maryland, Georgia, Florida, that every time we go to a new community, it’s like, alright, now it's our fifth store in that market and people kind of get what we're about. We're just trying to bring fresh, healthy food to more and more neighborhoods, which, you know, is kind of exciting to be part of that, too. When you asked the management team at Sprouts, you know, one of the reasons why they're there. Every one of them quotes is: They kind of believe in the vision and what we're trying to do, this higher purpose, versus just, you know, you're coming to work every day.

Spencer Levy
Brandon, same question to you. You've been in this business a long time, represented a lot of grocers and other retailers, Five years looking back, tell us about what you see as the, what Sprouts is going to look like, but the grocery business overall.

Brandon Famous
Oh boy, that's a hard one. So I think what you're going to see is – you won't see much change from what you see today, okay. So you're going to look back and you're really, you will see grocers become obviously much smarter about what they're doing. But I think what you're also going to see is a lot of these grocers growing more – what's the word that they use their own brand?

Dave McGlinchey
Yeah, a private label.

Brandon Famous
Private label, than anything else, because of the savings there. Which will really push people more towards the Sprouts of the world.

Spencer Levy
But you don't see, I guess, this question is the last question for both of you, is, you know, we track very closely Internet penetration of different categories of retail goods, and the overall percentage is around 20%, and a grocery is somewhere around five, depending upon how you calculate it. Is that going to get much higher?

Brandon Famous
No.

Dave McGlinchey
I don't think so either. I mean, it's funny. If you look at Europe, you know, look at England. It’s a very small country. Logistically, you can get everywhere pretty quickly. And I think it's about 20% in grocery, and that's having the best logistics possible. I don't think it's going to get more than this, kind of where it is right now, which for us is in this 10%. That's kind of where everyone's. But it was all COVID-related. I mean, all of a sudden everyone's like, oh, you know, I don't want to go to a store. Now I get this level of convenience, and across the board, I mean, even Target that just announced, I think they saw 2, 3% growth and they're putting a lot of energy into it. So I think it's going to stay around the same.

Brandon Famous
Yeah

Spencer Levy
And I think you need to segregate the market between the boxed goods and the fresh produce.

Dave McGlinchey
For Sure.

Brandon Famous
Absolutely.

Spencer Levy
That's where that 10% number comes in, and my 5% is the produce number, really.

Dave McGlinchey
Yeah. And for our format we really don't want to get any bigger because we want the store experience and the freshness and etc. for people in the store.

Spencer Levy
Excellent. Well, thank you to both my good friend Brandon Famous, Executive Vice President, CBRE.

Brandon Famous
Thanks.

Spencer Levy
Thank you for joining us. And Dave McGlinchey, Chief Strategy Officer of Sprouts Farmers Market. Terrific job today.

Dave McGlinchey
Thank you so much. Appreciate it. Thanks.

Spencer Levy
Thanks for checking out this episode on Sprouts Farmers Market and its special approach to the grocery business. For more, check out our Website, CBRE.com/TheWeeklyTake. We'll be back next week. Meanwhile, don't forget to share the show as well as subscribe, rate and review us wherever you listen. I'm Spencer Levy. Be smart. Be safe. Be well.