While competition remains intense, the large-scale grocery pricing wars many feared would have broken out in the wake of hard discount expansion and Amazon’s takeover of Whole Foods have not materialized, according to Amin Maredia, CEO of Sprouts Farmers Market.
Instead, Maredia said, retailers have been rationally passing along increasing prices and remaining mindful of the damaging effects their pursuit of volume had while in the throes of deflation a year ago.
“I think the fears are people feel one or multiple people are going to bring prices down pretty significantly in the industry. And I think from what we're seeing is, people have been fairly responsible in managing the business,” Maredia said in a conference call. “And as deflation is dissipating, we're seeing a lot more discipline from the retailers who are doing well around pricing.”
For the third quarter, which ended Oct. 1, Sprouts saw net sales increase by 16% to $1.2 billion and net income soar by 32% to $31 million. Comparable store sales of 4.6% were well above analyst estimates of a 2.6% gain from the same period last year. Maredia said Sprouts improved it performance behind efforts to build shopper frequency and bigger baskets though unique assortments and enhanced deli and fresh offerings, improved communication with its shoppers, and better efficiency.
Lapping the heavy promotional competition experienced a year before also helped, he said.
“Certainly, when somebody gets upside down and starts running negative traffic or deep negative traffic, they may be irresponsible for some period of time,” Maredia said, presumably referring to Albertsons Cos. “But that tends to be short-lived and doesn't work. And that's been proven in '16. Those retailers aren't doing that well today.”
Owing to continued strong sales in the first weeks of the fourth quarter, Sprouts said it expected net sales to grow by 14.5% to 15% on the year, up from a previous estimate of 13% to 14%, and comps to grow in the range of 2.5% to 3%, vs. a previous estimate of 1.5% to 2%.