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1-on-1 With Sprouts CEO Amin Maredia

Amin Maredia

Amin Maredia is a merchant descended from a long line of farmers, a business leader who was also a beancounter, and a health food giant who started in the kitchen of a KFC. In an exclusive interview with WGB, the CEO of Sprouts Farmers Market discusses his background, and his strategic goals of evolving the farm-to-store phenomenon of Sprouts, both through new stores and by improving the merchandising and experience within and outside of them.

Can you tell me a little about your background? I know you were at Burger King prior to Sprouts, but what about before then?

I always say this because it’s applicable to Sprouts, but I’m a 10th-generation farmer from a rural part of India. My family farmed cattle as well as corn. My dad was the first entrepreneur of the family who came to the city, then to the U.S. I came to Texas when I was eight and grew up between Austin and Houston. That makes me perfect for this job—a 10th-generation farmer and a first-generation merchant.

My dad was in the retail business; he was a KFC/Taco Bell franchisee. I got my retail chops having the worst job you could have: I worked in fast food, I worked for my dad, and I didn’t get paid for it. I call that the Triple Lindy.

After doing consulting, I spent a little time in the energy business, but I really missed retail and the consumer. In 2005, I had the chance to get back in at Burger King and did a couple of different jobs there. When we sold [Burger King] in 2010, I started talking to different companies, and that’s when I found Sprouts. I loved the concept and I felt it had such a long runway.

Did you aspire to be a CEO?

It’s something I wanted to do in my career. The last two CEOs I worked for prior to Sprouts always said I was I was a strong business person who happened to be good at finance. They said that’s unusual: A business-minded finance person. I said, I hope that’s a compliment.

Do you recall the first time you came across Sprouts?

It was when I met the founders, Stan and Shon Boney. I met them in Austin and we walked the store together. Stan in many ways reminded me of my grandfather, talking about being a merchant and very business minded. Walking the back rooms, I said to Shon, ‘There’s not a lot of inventory back here.’ And Stan from the corner says, “Can’t sell it if it’s in the stock room.’”

We tend to think of Sprouts as a modern thing that’s well designed for how the shopper shops today but they go a long way back with the Boneys.

If you look at their roots, from the first farm stand they had in 1943, to the Boney’s Market in the early 80s, the heritage of the business was fresh product. And as customers started asking them to carry other things they did, and that’s when you starte,d to see natural groceries and other things tied in to the fresh business. Over time the business continued to evolve with trends but with a laser focus on two key trends: Health and value, and continuing to listen to what the customer is asking for, without ever leaving the mantra of health and value.

As the Sprouts model came about, where we sit today is health, value and customer service. Our own journey is to continue to create experiences in the store. That’s what customers – and  not just millennials – more and more are really looking for. Twenty or 30 years ago, they looked for convenience and value. Today they are looking for fresh, health, convenience, value and a great experience on top of it all. They want it all.

Are there one or two of those things you feel Sprouts still needs to work on?

The things the company excels at are health, value and customer service. And I would also say we excel at carrying different kinds of products—not just the large natural and organic brands, but also our own unique brands, and private label. We spend a lot of time and intentional energy on new brands, local brands and emerging brands.

In our journey over the last two years, we’ve developed a terrific suite of products in the deli area and in meat and seafood, and we’re ready now to take the next leap into really merchandising those areas in a more experiential way that customers want to see.

That can be challenging to do efficiently.

In 2011, the amount of business we did in the fresh area was less than 40%. Today, it’s over two-thirds of our business. And we continue to expand that because customers are looking for that fresh experience, and what we call internally “ready to eat, ready to heat and ready to cook.” That’s the idea that customers may have a list of 20 items they want to prepare tonight, or they might just want to pick something up and heat it in the oven, or they might just want to take fresh product home, put in the oven or a skillet for 12 or 15 minutes, and have all the rest of the work done for them: the marinating, prepping, cutting, slicing and dicing. We want to be at the front end of that trend.

In a recent investor conference when asked how Sprouts does it what does, you said something to the effect of “look at Chick Fil-A.” The message I got was “It’s harder than it looks.” Can you elaborate?

Successful brands today are very intentional about what they do. One of my favorite examples is Geico, which does three things really well that they feel matter most to customers. And they spend a lot of time and intentional energy being average at everything else, and not overinvesting in that.

For Sprouts, it’s very much the same. It all starts with product, national brands, emerging brands and private label, fresh product, and attribute-based products. The second element we’re becoming more maniacal about is experience in the store. We’ve always been very good at customer service. Where we are spending a lot of time today is simplifying the shopping experience in a way where customers can have more fun shopping.

We don’t want our customers to come with a shopping list. We want them to be like a six-year-old in a candy store, experiencing it with their eyes and buying with their eyes. In the end, the experience with food is happening with eyes and taste, so we’re spending a lot of time thinking about how we can merchandise particular areas of the stores even better today because those areas weren’t big businesses for us 10 years ago.

Can you discuss the importance of buying relationships?

It all starts with produce. We’re one of the few food retailers out there whose relationships go straight to the growers. We don’t do a lot of middleman buying. We have a number of accounts out there out there where I’m talking to the grandfather, [president] Jim [Neilsen] is talking to the father, and our produce buyers are talking to the grandkids. That what allows us to bring the freshest product to the stores. Our goal is to go from farm to store in 48 to 72 hours, taking the supply chain directly into the stores. That’s a point of difference, being able to do that as quickly as we do, because we sell so much of it. We sell two to three times more produce than some conventional retailers. That allows us to move a lot of product throughout, and keep it at ambient temperature. So the freshness is very different when its not sitting in chilled temperature.

Just as CPGs, Coke, Pepsi and Frito-Lay are traffic drivers for conventional stores, our traffic drivers are produce, meat, nuts and trail mixes. That’s what we are.

Can you say a few words about your management team?

We’re pretty fortunate to have a fantastic leadership team. Jim has got 15-plus years in conventional and another 15-plus years in natural and organic. [COO] Dan Sanders is a former military guy. High IQ. Exceptional at process, leading large teams, developing new ideas and understanding what motivates people. [Chief Development Officer] Ted Frumpkin was at several large retailers and led the East Coast of expansion of Walmart for many years. Shawn Gensh, our chief marketing officer, is both an entrepreneur and a former senior executive at Target.

We wanted to build a team with deep industry experience but also creative and outside-the-box thinkers. Our team has seen the other side of the growth. One common thread of all of our executives is that they’ve taken brands from 200 or 300 stores to 3,000 stores. Brad Lukow, our CFO, took Shoppers Drug Mart when it was 200 stores built it to 1,300 stores. He’s seen some fantastic innovation. I love Brad because he’s kind of business first, finance second. He’s a very business-minded CFO.

About a year ago we heard Albertsons was interested in acquiring Sprouts. What can you say about merger and acquisitions?

Sprouts is right where the trends are in health, freshness, small footprint, easy convenient shop, so there will always be rumors out there. What I tell the team is if we do exceptionally well, we’ll be too expensive to buy.

You spoke some time ago about a goal to reach annual sales volumes of $20 million per store. Where along you along that journey?

That’s a journey we’re continuing. Our next evolution in that is really building out our capabilities. We’ve seen a lot of deflation over the last couple of years and as we continue to evolve merchandising in deli, private label, meat and seafood we have also seen strong new store openings: 2016 and 2017 [new openings] were our strongest vintages out there and a lot of that has to do with our continuing to evolve our business. We’re driving significant step changes in these areas will help us continue toward that goal.

What about further expansion? 

Today we’re everywhere from Northern California, across the middle of the country, down to Florida and the Carolinas and now into the Mid-Atlantic. Philly and Washington DC are coming up. What’s nice about the growth strategy is it aligns closely with population growth, income growth, and education growth. It’s what I call the smiley face of the U.S. We’ll continue to go where demand for healthy food is high and seconds where competition is average.

What opportunities are there for Sprouts now that we heard Whole Foods is doing less with emerging brands?

When we merged Sunflower, Spouts and Henry’s together in 2011, we brought some of the best merchants in the business together. We had the best of the best. What anchors us and makes us different from specialty natural organic and high-priced stores, and others who carry similar items, is that we have this mantra of win-win partnerships with natural and organic suppliers. They understand we are true to this space and that this is what we do for a living. And we work together. We never ask “How do I get this cost lower? We ask, “How do we get this cost lower to drive more sales?” And that’s what they’re interested in. Our approach in partnerships has really separated us.

Private-equity backed retailers have suffered a number of recent casualties but the Sprouts-Apollo partnership was real success.

A lot of it had to do with great timing. Apollo was a great partner to put these companies together, and without Apollo’s business and financial acumen, they might not have come together. They put together a good management team and then gave them a lot of legroom. I have nothing but high respect for them. They were very business minded. Financial return is what they seek, but they were business minded and supportive, looking at the longterm growth of the business instead of the short term gains.

Food retail is very different today. The natural/organic space is different today that it was five or seven years ago. Being in the middle is not a lot of fun. You’re either scaled at value or you’re differentiated and special. And if you’re in the middle, you’re constantly fighting the battle of being neither.

There’s 28,000 traditional grocery stores in the middle. There’s 5,000 to 6,000 value oriented retailers and 4,000 to 5,000 specialty differentiated retailers, and the middle is where the leakage is. People ask us how can there be more boxes, but it’s the ones in the middle that are going away, and we continue to see some of those 28,000 going bankrupt.

It can take a long time for them to go away.

The one thing about this business is it’s a cash-flowing business. And cash flow doesn’t go zero quick.

If we talked again in five years, what would you tell me about Sprouts?

What I’d tell you is it’s a fun, visual, differentiated in-store experience with a fantastic out-of-store experience which give me knowledge and information I need to know about to eat healthier and makes it frictionless, where I go to the store or have it delivered to my house or office or anywhere else I want to be. Our next journey for Sprouts is continuing to push health experiences in and out of stores and make a grocery shopping fun and enjoyable.

We’re also deeply engaged on the community. Our focus on growing and developing team members for career success and deeply rooted in community activities wherever we have stores -- not because the shoppers give us credit but because it’s the right thing to do. It’s rewarding for everybody.

Last year we donated 23 million pounds of food in a program we call “food, feed, field.” If it’s donatable we give it to community organizations. If it’s not, we donate it as cattle feed, and if not appropriate cattle feed, then it goes back into the ground for growing, completing the circle.

 

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