Sprouts Farmer Markets' Decision To Go Public Met With Mixed Reaction

July 26, 2013

This week, Sprouts Farmers Market announced it is going public. The Phoenix-based grocery chain has grown very quickly, and some industry observers think it is on track for continued success, but not everyone sees the kale and quinoa seller as a healthy investment.

Sprouts said it will sell 18 million shares starting at $14 a pop. The decade-old company runs stores in Arizona and seven other Western states.

Burt Flickinger is managing director of the Strategic Resource Group, a retail consulting firm. He said Sprouts stores are smaller than the typical supermarket, so they can open up in spaces where other chains would not fit, and even though competing with other natural food stores like Whole Foods is risky, Flickinger thinks the upstart chain can handle it.

“It would not be surprising for Sprouts to have more stores by the end of this decade than Whole Foods does, so going from 150 stores to approximately 425 to 450 stores," Flickinger said.

But not everyone thinks the company is as wholesome as the food it sells.

“Sprouts is deeply in debt, and they need some money," said David Livingston, a supermarket consultant.

He said Sprouts borrowed a ton of money and then paid its major shareholders a dividend.

“So I think a lot of this is more for the benefit of the owners, I don’t really know if they’re going to be able to grow that much," Livingston said.

Sprouts said it plans to use the money it makes on the initial public offering to repay its debt, about $250 million. Livingston said Sprouts has got to sell its story to investors.

“And I think that might be difficult, because for the typical organic, natural food stores, Sprouts generally underperforms when compared to other competitors such as Whole Foods and Trader Joes," Livingston said.

But Flickinger thinks the Sprouts initial public offering should be a success.

“While the prices are very competitive at Sprouts, the profit margins in produce tend to be about a full 10 cents on the dollar higher than they would in the grocery departments in the center of the store, and Sprouts tends to have less inventory loss because they sell the product while it’s still fresh," Flickinger said.

Sprouts will not be publicly traded until the federal government approves, for which unsurprisingly, there is no set timeline.

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