Culture and Competition in the Natural Grocery Sector

Currently operating in eight states and set to expand, Sprouts Farmers Market (NASDAQ: SFM  ) describes itself as a neighborhood grocery store specializing in healthy living for less. CFO Amin Maredia joins the Fool to talk culture, margins, growth, and more. A CPA and Harvard Business School alum, Maredia joined Sprouts in 2011 after serving at major companies including PriceWaterhouseCoopers, Burger King, and others.

In this video segment, Maredia says the Sprouts culture is one of the main reasons he chose to work there. He also discusses the company's relationship to Whole Foods Market (NASDAQ: WFM  ) and other grocers, and the changes he's seen in the retail marketplace over the years.

A full transcript follows the video.

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Brendan Byrnes: How about culture? I know a lot of companies that have been successful -- Costco, The Container Store, etcetera -- view culture as a huge part of that success. They pay employees more than they probably have to, their turnover is very, very low. How does Sprouts view that, when you're talking about over 14,000 employees? Do you see this as a priority?

Amin Maredia: Brendan, I'll tell you that, when I came out of Harvard Business School, I talked to about 45 different companies. I chose Sprouts for two reasons. One was the business model and the strength of the business model and the industry trends, and the second was culture.

The culture is one of doing the right thing at all times. It's a very customer-focused, and a very employee-focused culture, and that's what really Sean and Stan, founders of the company, build the culture on; phenomenal guys. Doug Sanders, who became president in 2005 when we had 10 stores, really continued to embody that culture; he's a true leader from behind.

The entire senior executive team, when we think about over the long term what do we need to protect in this business, the culture is one of the most important things to us. We sometimes joke and say, "No matter how smart somebody is, if they don't fit our culture, they're not right for Sprouts." We see that in the stores every day.

We have not only an open door at the support office, but even in the stores. You're never going to find me dressed like this in the store. It's going to be jeans and a T-shirt. It's going to be a Sprouts T-shirt. At the end of the day, we're in the people business, and we're in the service business, for our customers and our employees.

The company has just got a phenomenal culture, and one of our biggest challenges is to make sure we protect that and continue that as we move forward and become a larger company.

Byrnes: A lot of our viewers that are watching right now, and a lot of our members, are invested in Whole Foods. Could you talk about whether you view them as a competitor, how you see Whole Foods, and the contrast there?

Maredia: Yeah. I think there are several points here. First is, anybody who sells grocery is our competitor, because our focus, and our core customer, is really the everyday supermarket customer. For us, it's the middle income, upper-middle income. We focus on going into areas where there is median income all the way up to upper-middle income, or to a higher-income customer; from a lifestyle customer to somebody who is new and starting to learn how to eat healthier, so it's a very broad customer base that we have today.

Really, our primary competitor is the everyday supermarkets. That's who we're competing with on a day-in, day-out basis. We're in the same markets as Whole Foods. I think three of their four largest markets are California, Colorado, and Texas, and those are also three of our largest markets today. We've been coexisting with Whole Foods for almost a decade now, so nothing new for us.

Byrnes: I wanted to ask you; you mentioned "traditional" grocers. They're getting more into the organic/healthy, albeit slowly. Is this something you see as a possible threat, and does that change the way you do things at all?

Maredia: I think, when you really look at retailing, and you look at what Sprouts does and the tenets that we're built on -- health, selection, value, and service -- over the last 20 to 30 years, since Wal-Mart got into the game, conventional retailing became focused on sales per square foot, and how to cut cost out of the system.

You're seeing lower service in the stores today, lower investment back into the stores today; all the things that make food retailing exciting, attractive to customers. As we go forward, we're continuing to focus on what we know, what food retailing was successful back in the '50s, '60s, '70s; putting a new dimension to it, which is the healthy trend.

Two of the biggest things that we hear customers talk about when it comes to healthy living is, "I don't know where to start," and "It's too expensive," and Sprouts is breaking both those barriers.


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