Sprouts Farmers Market 2014 Annual Report Download - page 13

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. (referred to as “NB”) is our primary supplier of dry grocery and frozen food
products, accounting for approximately 23%, 23% and 17% of our total purchases in fiscal 2014, 2013 and
2012, respectively. Another 4% of our total purchases in each of fiscal 2014, 2013 and 2012 were made
through our secondary supplier, United Natural Foods, Inc. (referred to as “UNFI”). 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.
We have a broad range of customers from those looking for value, to customers seeking specific
attribute products, to those seeking to eat healthier. We believe the majority of our customers are initially
attracted to our stores by our fresh produce, which we offer at prices we believe are significantly below those
of conventional food retailers and even further below high-end natural and organic food retailers. We drive
customer traffic by aggressively promoting produce and other items through weekly advertisements designed
primarily to reach the everyday supermarket shopper. These customers are typically “trial” customers that
limit their shopping to specific products or departments, such as produce. Through department-specific
promotions, in-store signage, and customer education, these trial customers become “transition” customers
that shop new departments and try new products. Over time, through customer service and engagement,
targeted marketing, and increased knowledge of our product offering, we believe that transition customers
become “lifestyle” customers that shop with greater frequency throughout the entire store. The table below
provides an overview of our trial, transition and lifestyle customer maturation cycle.
Category Description
Trial Trial customers are new to our stores and typically limit their shopping to a specific
product or visit a single department (e.g., produce).
Transition Former trial customers that have become familiar with our stores through promotions, in-
store signage and customer education, and are shopping an increasing number of
departments.
Lifestyle Lifestyle customers are frequent customers that make Sprouts their primary grocery
shopping destination. They are very familiar with our stores and shop for products
throughout the entire store.
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