Sprouts Farmers Market 2013 Annual Report Download - page 19

Table of Contents
Store Selection and Economics
We have an extensive and selective process for new store site selection, which includes in-depth analysis of area
demographics, competition, growth potential, traffic patterns, grocery spend and other key criteria. We have a dedicated real estate
team as well as a real estate committee comprised of our Senior Vice President—Business Development and other members of
senior management, including our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. Multiple members of
our committee will also conduct an on-site inspection prior to approving any new location.
Our typical store requires an average new store cash investment of approximately $2.8 million, consisting of store buildout
(net of contributions from landlords) of approximately $2.4 million, and inventory (net of payables) and cash pre-opening expenses
of approximately $400,000. On average, our stores reach a mature sales growth rate in three or four years after opening, with net
sales increasing 20-30% during this time period. Based on our historical performance, we target net sales of $10-$12 million during
the first year after opening and pre-tax cash-on-cash returns of 35-40% within three to four years after opening. We believe the
consistent performance of our store portfolio across geographies and vintages supports the portability of the Sprouts brand and
store model into a wide range of markets.
Based upon research conducted for us by Buxton Company, we believe that the U.S. market can support approximately 1,200
Sprouts Farmers Market stores operating under our current format. We believe we have significant growth opportunity in existing
markets, as approximately 300 of these 1,200 potential stores are located in our current markets (nine states). We intend to achieve
12% or more annual new store growth over at least the next five years, with a balanced focus on existing, adjacent and new market
growth.
See “Properties” for additional information with respect to our store locations.
Competition
The $600 billion U.S. supermarket industry is large, intensely competitive and highly fragmented. We compete for customers
with a wide array of food retailers, including natural and organic, speciality, conventional, mass and discount and other food retail
formats. Our competitors include conventional supermarkets such as Kroger and Safeway, as well as other food retailers such as
Whole Foods, Natural Grocers by Vitamin Cottage and Trader Joe’s.
Insurance and Risk Management
We use a combination of insurance and self-insurance to provide for potential liability for workers’ compensation, general
liability, product liability, director and officers’ liability, team member healthcare
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Examples include bananas or water for fundraising road races, reusable bags for health fairs and green festivals and gift cards to be used as raffle items or to provide catering for a fundraising event. In August 2013, we launched our Food
Rescue Program to donate items to local food banks in the markets in which we operate.
• Volunteerism . Our team members are encouraged to help people and organizations in need. We have provided major
volunteer support to events like the Arizona Walk Now for Autism Speaks, the Phoenix Rescue Mission, and various food
banks. With an engaged base of approximately 14,000 team members, we have the ability to use our leverage to support
causes.