Sprouts Farmers Market 2013 Annual Report Download - page 16

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Table of Contents
Private Label
We have been expanding the breadth of our Sprouts branded products over the last several years and have a dedicated
product development team focused on continuing this growth. These products uphold our quality standards, and include no artificial
flavors, colors or preservatives. We believe our private label brand features competitively priced specialty and innovative products,
at quality levels that equal or exceed national brands. We have increased our portfolio of private label items from approximately 800
items at the end of 2011 to approximately 1,400 as of December 29, 2013. We believe our private label products build and enhance
the Sprouts brand and allow us to distinguish ourselves from our competitors, promoting customer loyalty. Our private label brands
generally provide us with increased margins and our customers with lower prices compared to branded products.
Sourcing and Distribution
We manage the buying of, and set the standards for, the products we sell, and we source our products from over 800 vendors
and suppliers, both domestically and internationally.
We believe, based on our industry experience, that our strong relationships in the produce business provide us a competitive
advantage and enable us to offer high-quality produce at prices we believe are significantly below those of conventional food
retailers and even further below high-end natural and organic food retailers. Given the importance of produce to our stores, we
source, warehouse and distribute all produce in-house. This ensures our produce meets our high quality standards. We are
supported by dedicated regional procurement teams that provide us flexibility to procure produce on local, regional and national
levels.
We have department and product specifications that ensure a consistently high level of quality across product ingredients,
production standards and other key measures of freshness, natural and organic standards. These specifications are measured at
both entry and exit points to our facilities. We distribute all produce to our stores from two leased distribution facilities and one third
party operated distribution facility, and we manage every aspect of quality control in this department. We believe we have sufficient
capacity at these facilities to support our near-term growth plans.
We believe our scale, together with this decentralized purchasing structure and flexibility generates cost savings, which we
then pass on to our customers. Distributors and farmers recognize the volume of goods we sell through our stores and our flexible
purchasing and distribution model allows us to opportunistically acquire produce at great value which we will also pass along to our
customers.
For all non-produce products, we use third-party distributors and vendors to distribute products directly to our stores following
specifications and quality control standards that are set by us.
Nature’
s Best, Inc. is our primary supplier of dry grocery and frozen food products, accounting for approximately 23% and 17%
of our total purchases in fiscal 2013 and 2012, respectively. See “Risk Factors—
Disruption of significant supplier relationships could
negatively affect our business.”
Our Customers
Our target customer seeks a wide assortment of high-quality fresh and nutritious food as well as vitamins and supplements at
competitive prices. We believe our value proposition and complete grocery offering engages both conventional and health-focused
shoppers.
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