CPG Playbook   //   February 13, 2023

‘It’s a great proving ground’: Why food startups are flocking to Sprouts Farmers Market for their first major retail launches

This month, direct-to-consumer ice cream startup Marco Ice Cream is hitting over 100 Sprouts Farmers Market stores. The brand, which launched online in August 2020, is hoping to make a national splash with its first major retail launch — and its founders believe Sprouts is the perfect retailer to take its presence to the next level.

“We’re trying to launch early where we think our best consumer is, which is the natural and specialty shopper who’s always discovering new brands to try,” Avery Henderson, co-founder and CMO of Marco Ice Cream, said. He also noted that as a higher-priced product, it’s much easier to build awareness among early adopters of premium brands. “Targeting the likes of Sprouts customers also helps our marketing dollars go further,” Henderson said.

It’s a growing sentiment among the founders of food and beverage startups, who say that Sprouts has catapulted to the top of their retail wishlist, ahead of even Whole Foods and Erewhon. At around 380 locations, Phoenix-based Sprouts is one of the largest grocery chains in the country that specializes in natural and organic foods. That makes Sprouts the ideal first partner for many startups operating in these categories, with founders saying that Sprouts’ buyers work quickly and are enthusiastic about innovative and better-for-your products. 

A few recent examples: Just months after launching on Amazon in June 2020, Poppi hit all Sprouts shelves, making it one of its first national chain launches for the prebiotic soda brand. Last November, pantry staples startup Voyage Foods launched at Sprouts, marking it as one of its first physical retail partnerships after selling online for a few months. Canned food startup Heyday Canning Co. also debuted at Sprouts last fall before entering Whole Foods in January, and is merchandised at the retailer’s innovation center. 

Sprouts did not return a request for comment on its strategy around scouting and working with new brands. But, in the last couple of years, one of Sprouts’ newer tactics appears to have been trying to woo some of these smaller, buzzy brands through new dedicated in-store sections touting these products. Sprouts started adding branded “innovation centers” within its newer store formats that opened in 2021 and 2022. The section is focused on a rotating selection of trending products and new-to-Sprouts brands. The dedicated hub displays the latest trending products and seasonal items from emerging brands.

Sprouts CEO Jack Sinclair said at the time that the goal of these innovation centers was to generate “buzz” and to underscore to shoppers that “there’s always something new to get excited about.”

The right customer demographic

Sprouts has been around for just about 20 years, having opened its first store in Chandler, Ariz. in 2002. Over the early years, the retailer was mostly concentrated in the Southwest and Western part of the country, but has been rapidly expanding in the South and Southeast for the past few years. The chain gained popularity among shoppers for its wide selection of organic produce and commitment to sustainability; as one small example of this dedication, Sprouts receipts are printed double-sided to save paper. The company went public in 2013, and has seen accelerated growth during the last few years. In its latest quarterly earnings last November, Sprouts reported $1.6 billion in total sales, a 5% increase over the previous year. Much of the growth was driven by new stores, with same-store comp sales increasing by 2.4%.

Today, Sprouts stores are located in over 270 cities across 23 states, making it a darling among food and beverage startups who want to make the step up from regional chains into a more national brand. 

Marco Ice Cream’s Henderson said that, so far, the company’s retail strategy has gradually revolved entering regional natural grocery chains. To date, these have included Gelson’s Markets in Los Angeles, Central Market in Texas and most recently, Whole Foods’ Rocky Mountain region last September. 

The Marco founders met Sprouts’ buyer at Expo West last year, and from there worked with brokerage Green Spoon Sales for Sprouts distribution. Earlier this month, the brand’s line of globally-inspired ice cream flavors entered 100 Sprouts doors in its first week, and is already available at all locations.

One tailwind that is working in Sprouts’ favor right now is that — at least according to the company —  Sprouts shoppers have shown resilience even amid rising inflation. In Sprouts’ latest quarterly earnings, CFO Chip Molloy noted that shoppers have cut back on the number of items-per-trip but are opting for more premium and higher priced products.

Another advantage to courting Sprouts early, Henderson said, is that the retailer typically takes on a brand and distributes it throughout several regions — quickly creating a large area of coverage. This is in contrast to Whole Foods Market’s strategy, for instance, whose buyers focus on expanding a brand regionally. “Whole Foods is very hard to get into nationally,” Henderson said.

“They’re also efficient with rollouts, and we had a diligent team stocking shelves within a week of launching there,” he said.

Henderson said that within his CPG circles, Sprouts is also known for trying to differentiate its shelves of emerging product categories. For example last year, sparkling water company Aura Bora released elderflower grapefruit — the best-selling flavor on its website — exclusively at Sprouts.    

Henderson added that a large chunk of Sprouts’ customer base clips the retailer’s digital coupons, which brands can participate in weekly. “They also have an influencer network of about 250 members, and brands can work with a coupon vendor to have them promote their products,” he said. 

Pecan-based milk brand PKN is another brand that recently launched at Sprouts. After entering over 200 Sprouts stores in December, the chain became PKN’s first national rollout. PKN first launched at select natural markets in California; these include Berkeley Bowl, Nugget Markets and Bristol Farms, followed by Foxtrot in cities like Chicago and Washington D.C. 

Since launch, Sprouts has become a top priority for the startup, said PKN founder and CEO Laura Shenkar. This has consisted of investing in a merchandising team to visit stores and paying for sales data through a third-party vendor. “We’ve sent out a team to speak to the dairy managers, and have their departments try our milk and talk to customers about it,” she said. 

Shenkar said, “[Sprouts] were always at the top of our wishlist,” and reiterated the visibility advantages that Marco Ice Cream saw in selling at Sprouts. “For one, the stores are also in many areas that aren’t dominated by Whole Foods,” she said – including growing affluent areas like Jacksonville, Fla. and Charlotte, NC. 

“Sprouts also has a very curated selection,” Shenkar explained. “Typically, an average Sprouts store has about 18,000 SKUs, compared to about 300,000 at Kroger.” 

For many brands, it can take months to work out all of the details associated with launching into a larger chain like Sprouts, like  securing enough manufacturing and fulfillment capacity, as well as connecting with the right buyers. But founders say it is worth the wait.

Lupii, a company that makes lupini bean-based protein bars and pastas, is launching its pasta at all Sprouts locations this April. Co-founder Alexandra Dempster told Modern Retail that as of last summer, Lupii’s bars were physically available at 50 Whole Foods locations in the Northeast. 

Dempster and co-founder Isabelle Steichen had been trying to enter a national retailer and were pitching Sprouts on the bars. Coincidentally, Lupii also debuted its plant-based pasta line in September, which was showcased at Plant Based World Expo in New York City. 

“Originally, we had been trying to get in touch with them about our bar line,” Steichen explained. “So we were very excited when the foraging team stopped by our booth.”

The Lupii launch was originally scheduled for March, but was pushed to April due to fulfillment challenges. “Now that we have a date lined up, we want to make sure our demo program is set up and are working with vendors that can help facilitate it,” Dempster said. Lupii is also in talks with other startups sold at Sprouts to collaborate on sampling, “like a sauce brand that works well with our pasta.”

While Sprouts has become known for seeking out young brands to stock its shelves, these founders say the entrance is just the beginning.

“You have to do well there,” Marco’s Henderson said, “which is not easy because there are a lot of new brands vying to be [at Sprouts].” However, he added that “it’s a great proving ground for a startup like us trying to show we can scale nationally.” 

PKN’s Shenkar said that for better-for-you or natural products, Sprouts is currently an important grocery retailer to court.  

“They are in the business of high quality products,” Shenkar said, adding that Sprouts buyers tend to understand startups’ missions, such as PKN’s sustainability efforts among alternative milk brands. “It’s an ideal retailer to help make a big deal out of our brand,” Shenkar said.

Update: This story originally stated that Lupii was available at just eight Whole Foods locations as of last summer. After publication, Lupii’s co-founder said she misspoke, and that her company’s products were available at 50 Whole Foods locations in the Northeast last summer.