Sprouts Farmers Market, Inc. (SFM) Earnings Call Transcript & Summary

Well, hello, and welcome to DbAccess Global Consumer conference. I'm Paul Trussell with the U.S. retail analyst. I'm very happy to have with me the Sprouts Farmers Market management team. Specifically, we have with us Jack Sinclair, CEO; and Susannah Livingston, VP of Investor Relations and Treasury. I want to welcome you both to this fireside chat. In terms of the format today, it will be Q&A, and I certainly have a list of questions that I will be looking to get through, but I do invite all the listeners and participants to use the question-and-answer box. And please type in any topics that you would like me to dig in on or follow-up on. As a reminder, Jack Sinclair has been CEO at Sprouts since June of 2019. He was previously the CEO of 99 Cents Only; and from 2007 to 2015, he was EVP and Head of U.S. Grocery for Walmart, Inc. He also spent a number of years as Safeway PLC back in London. Jack, I'm going to turn it over to you for some introductory remarks and then dig into some questions.

Great. Thanks very much, Paul, for hosting this and putting all this together. It's kind of -- it's very appropriate, being called a fireside chat because there's 160 degrees out here in Arizona. So I don't know why you're going so fast, but it's certainly a fireside chat here today, so thanks for putting together. Yes, I'm having a very fulfilling time here as a CEO of Sprouts. It's been a really interesting kind of business to -- I watched it from a far when I was at Walmart, always admired the business in terms of the low profile, the fresh focused, the health focused and it's really nice to get the opportunity to be involved in the business here and build on some of the great work that's been done in the past. But it's a very immature business, Paul. And one of the things we're trying to do is bring the thing -- it was a lot of different companies that came together. I'm not sure everybody is aware of how it all evolved and emerged from Henry's and Sunflower and Boneys and then Sprouts, and it all came together. And I think the opportunity that's in front of us is how do we make this business really mature the business and take the growth that's always been inherent in it, because I think the customer base is inherently excited about health based, attribute based products that are a bit better for them and they can think that through. And the opportunity for us is to professionalize much of what we've done and build on the opportunity that we've got to build stores across many parts of the country, which don't have access to what we sell and to just consolidate and organize our business in such a way that we're a bit more targeted and a bit clearer about how we can organize ourselves more efficiently. And that's been the premise of what we've been working on over the last kind of 18 months or so while I've been here. And we made some -- we're trying to build the -- we're trying to build on the strengths of what made it great. I love going to the San Diego stores, which are the very first stores, where you get this really small field in farmers market. And we're trying to build that with bringing some other professional people that develop the business originally with new people that have come in, bringing slightly different skills like myself and 1 or 2 others. And pulling that together, trying to get this fusion of what made the company great in the first place and how we can build and grow it going forward. I'm having a lot of fun with it. So I'm excited to be here today, Paul.

We're very excited to have you. I guess, Jack, I wanted to start with a strategy question. As I mentioned, it's been about 2 years now since you've joined, and part of that initial assessment that you laid out was noticing the amount of promotional activity embedded in the business previously, along with the company previously having, maybe a bit of a broad focus around the consumer that it was trying to attain. Maybe talk about those 2 things in particular and how that's now been embedded into your go-forward strategy and your overall approach today.

Yes. Well, when I go out here, we spend a lot of time thinking through exactly where we're at and where -- what exactly the business is trying to do. And I think in simple terms, I kind of felt that we were trying to be all things to -- as we were growing, building bigger stores rather than smaller stores. We were trying to take on everybody, everything. And when you're a $5 billion, $6 billion business, I think it's unrealistic for us to be a very strong winner on price on conventional grocery against some of the bigger players in the marketplace, it's difficult for us to envisage us winning on convenience and against some of the Amazons and the other people in the industry. So we thought, well, what's made this thing great is being different and the differentiation that it brings. And the customers that really -- with the research that we did, the customers that really love Sprouts are these people who are held, we call them -- we call -- you could call them all those of different names, but we call them health enthusiasts and innovation seekers. People that are interested in new things and new trends in food, whether it be Keto or Paleo or gluten-free or the kind of trends that people attribute base trends that people are excited about. Those were the people that when you looked at the data, they were the people that are most excited about the Sprouts brand and the people that would write the [indiscernible] vacation in California and in Iowa. And we write to and say, please bring us price to Iowa, that kind of thing. And we got a lot to keep, and we could stop to feel who the people were. The people that we were getting in the stores but maybe not likely to win with long-term or what we call coupon clippers, people who were trading for the promotions in the marketplace. And those were the ones that ultimately weren't going to be the long-term loyalty-based customer that's going to drive the kind of growth and profitability that we would need going forward. So that led to a pivot where we said, okay, less target health enthusiast and innovation seekers, that's $200 billion of a $1.2 trillion market. And that sounds a bit scary when we say, well, we're not forgetting about $1 trillion of market, but we're not targeting $1 trillion. And we're saying we're going to be focused on that $200 billion, and we're going to make sure our marketing, our merchandising, our real estate strategy is focused on those group of people, and that has led us to change a lot of things in terms of how we go about it, particularly as you identify how we've done promotions. So what we're not doing is 21 million paper flyers every week with high-low promotion selling corn per ton per $1 or selling chicken fillets at $1.99 or kind of -- those kind of things, which we're going to leave to the conventional grocers in the marketplace. And that, in itself, was something that we just kicked in pre pandemic, and we're very comfortable that, that change in that strategy has given us a -- it's given us a platform in terms of profitability, a platform in terms of returns that allows us to really invest in the customer that is our target customer and that we can move aggressively and assertively and changing our marketing, even the little video we've just shown. That's under an umbrella called Where Goodness Grows. And the whole campaign, we've switched the campaign from spending all our dollars on these paper flyers, which are going into all these homes. And from an environmental point of view, it's pretty crazy as well. We're probably just trying the forest of Romania every week, and we're selling 21 million paper flyers out. So how do we get ourselves in a place where we communicate within a more effective media strategy, and a more broad -- a more targeted kind of approach, and that's where the Where Goodness Grows and that little cartoon kind of thing that we're doing is that's the campaign going forward. And we're building on that campaign and our merchandising in our marketing side. And from a merchandising point of view, we're really focusing in on fresh and attributes. We've built a couple of distribution centers to try and get a fresh distribution much closer to -- so that the stores are closer to the distribution center. So we opened 1 in Denver a month ago, and we opened 1 in Orlando last week. So that we're not traveling -- taking projects from Atlanta to Naples or from here in Phoenix to Denver. The distances don't lend themselves to really good fresh food. So that focus has been something that's allowed us, I think, to build on that. And it also allows us to be much better locally, much better seasonally, so that we're really linking to what's in season in a marketplace. We can do that in Colorado next month when the season really is that we couldn't have done in the past. We had to ship it to Arizona and ship it back again, which -- if you call the farmers market, that kind of feels right for our target customers to be much closer and much fresher. And we've done a lot of work on attributes. So the plant base has been a big investment for us. [indiscernible] is a big investment, [indiscernible], vegetarian, vegan, and that's working well in our dairy and our frozen department specifically going forward. So if you think about it, I'm comfortable that we've made the right switch. I think in some ways, it's allowed us to rebuild the P&L and rebuild the profitability of the business to sustainable long-term place that we can then invest in the customer and learn and test how best to attract and appeal to those target customers.

Thanks for that, Jack. What -- how should investors think about what inning you're in now in terms of the implementation of this new strategy? And associated with that is, how should they think about your top line algorithm going forward, just given the changes that you've made in terms of marketing and customer focus and pricing. What should be the right kind of top line and comp performance on a go-forward basis?

Yes. Well, in simple terms, we're looking to build 10% new stores. So we're 360 stores at the moment. So once we get past the pandemic and open some stores at the end of 2021 and then get on the proper cadence in 2022. we'll be growing at -- forget comps for a minute, that 10% growth coming. There's not too many people that can have a sustainable 10% store growth. And we know this -- we know exactly the people are there, the catchment areas that we need to build that we could build stores if we can get the right kind of stores in the right places. And the real estate team has been reorganized around that target customer. And we believe that from the -- that 10% is the kind of opportunity that we have to build stores within the kind of bandwidth that we have as a business to do. On top of that, we'd expect a kind of a modest comp. We're not in the business of Chase and after comp sales and comparing our comp sales to other people. We're looking at what does our modest comp look like, where we gradually and steadily increase our business with our target customers, both through a little bit more transactions in our less mature stores and a little bit more basket in our more mature stores. That balance, we're kind of working our way through. So if you're an investor, you're thinking, well, we've got 10% growth in new stores, they're going to get a couple more -- a little bit of comp on that. And on top of that, there are some inefficiencies in their business. That allows us to be confident that the algorithm of in terms of the profitability should enable us to grow faster than the top line. So you'll see a top line growth in double digits and a growth -- and a return on earnings growth in kind of low double digits kind of number. So that gives us -- that's the way we are managing our business. And the confidence of having it is partly because of what I said at the outset, there are some immaturities in our construct of how we operate our business because we're young and we put it all together. So that's some upside in that for us in terms of how we do our distribution, how we handle shrink, how we operate our labor in-store, labor hours in stores and how we buy, how we operate our door swing. We feel pretty confident that, that mix of top line growth from new stores a little bit of modest comp growth within the context of our target customers. And additional on top of that, a little bit more profitability is an algorithm that is an attractive investment and thinking about us differently to how we thought of it as a natural -- as a conventional grocer, we want to be a natural specialist retailer. If I had my way, I'd like us to just be judged as Sprouts and not put in with anybody else. If we could get that, that would be the aspiration, Paul, but I think we're a long way away from that, we're in the moment.

So to that point, though, Jack, for those that haven't visited the store, what should they know in terms of the differentiation of your merchandise and your assortment versus that of conventional food retailers? And what -- even from where you are today, what's the kind of journey you're embarking on to further kind of refine the assortment and focus?

Yes. Well, so one of the things that we've spent a lot of time on over the [indiscernible] year or so is this focus on the merchandising department and making sure that every merchant and -- it's very focused on how you build differentiation. So you look at ACV in the marketplace, if a product's in 30%, 40% ACV, it's not something that should be in our stores because ultimately, you might as well -- you're not going to do all your shopping at Sprouts. So why would you buy it from us? And there are a lot of items that have come out of our business since I got involved to make way for products that have got much lower ACVs, 0%, 5%. So the products are almost launched with us are very few other people would be selling it. And the merchandising team are focused. We've gone through category by category, product by product. And we're up to probably in our frozen business and our dairy business, we're probably up to 80% now, which is differentiated, totally different products. And really, they're focusing a lot, and I've been really pleased by the response in that by the team and by the customers in this. Where that's moved really well. Our frozen and dairy business, particularly plant and vegetarian, which is a huge trend with our target customers. We're encouraged the way that's working its way through our business. Grocery, we're seeing a really good strength in in people bringing new items to us, whether it be functional beverages or the keto space and some of the grocery products, plant based. So we're seeing -- grocery is probably a bit less than dairy and frozen, but we're making progress on that. And we want to become the destination for a lot of vendors. And we think we're making headway on becoming the place that if you're going to get a new product into a supermarket of any size, Sprouts is a place to go, and that's something that we're working hard to [indiscernible] the structure around a little bit, and we're pleased that some of the reactions to that. Our differentiation in our proteins. We've gone 100% Angus, grass-fed beef, and that's something that no one else has done. We'll go up to 35% of our project is organic projects, which I think is higher than anyone else is doing. So we're getting ourselves in a place where we're probably up to I would say 65%, 70% of where we need to be around the assortment and how it all plays to get how it all comes together. And we continue to work at that. And much of that's about in our new stores, and we're going to go back -- we're going to have an innovation center. So that all the new products that come in will be set aside so that when customers come in, they go -- I wonder what they're going to have in that place, and there's always something new to get excited about. Because grocery shopping were the best well in the world in the conventional space is never particularly exciting. And we've got to create that kind of buzz, they're going to have great fresh produce. They're going to have great local projects. And they've got this innovative stuff. Let's try that, whether it be snacks or drinks or cereals or. And there's a lot of products in the pipeline that we can fill that the space up. And 1 of the exciting things about the new store format that we've got is how much focus we're putting into the innovation center. And the sampling behind that innovation center as the pandemic kind of dive down a little bit here. I think it will give us an opportunity to get back to that sampling feel that people like Trader Joe's and Costco do so well, but hasn't done that. We want -- we aspire to being kind of as good as they are at creating that Buzz on the sampling side of things, there's a lot of work going on behind that as well, Paul.

Excellent. I appreciate that color. One of the concerns or at least kind of unknowns coming out of this pandemic is what in-store traffic will look like going forward. And there's certainly a lot of conversation around trip consolidation taking place this year. Do you have concerns? That the consumers have -- shopping habits have changed and that could impact their frequency of shop with a retailer like yourself?

Well, certainly, the consolidation of trip had a big impact on our business this year. Basket's high trips as everyone kind of knows that's exactly what happened. So how will that behavior change as the question? To start with e-comm, which is kind of one of the reasons that consolidation happened. Our e-comm business probably grew faster than any other grocer in the United States. I don't know if that's absolutely true, but it's not far off it. We grew from 2% of our business to at some point in the mid-teens percent of our business. That's drifted back down a little bit, but still in double digits as a mix of our business. So that's 5x from where it was. That kind of -- that reflects, in my mind, people wanting access to what we have. Because if you're going to go online for grocery shopping, if you go to Sprouts, it's because you really know what you want, otherwise, you can just get it anywhere kind of thing. So we were quite encouraged by that. We doubled down on pickup so that all our stores were able to accept pickup. So we've put ourselves in a position where the customer can access it as they choose to access. So then it becomes a how do we make them choose Sprouts. And that's part of have we targeted the customers and communicated and marketed to the customer as well. So then it says, well, what's going to happen to trips. We expect fresh food's not to be as big -- if you've got used to buying your groceries online, if it's your coffee and your diapers and your paper towels and you have big cereals. And it's likely that you maybe hang on to that behavior. But I think it's less likely you're going to hang on to that behavior for fresh produce. In particular, which is the biggest part of our kind of proposition. And if we do the right things in terms of freshness, which is park to the kind of distribution centers and making sure that we've got local. And if we do the right things, we'll give people a reason to come and shop fresh foods. And that's -- and we don't need that much traffic for this thing to be in line with the algorithm that I kind of outlined a little while ago. So the macro trend, I'm not quite sure what will happen. I do believe grocery will be bigger than it was before e-com. But I do believe people are going to get out more and kind of itching to get out. And when you're going out to go shopping, I think fresh foods is one of the things that kind of drives it the atmosphere. And I mean, farmers markets aren't going to disappear. I think they'll come back. I think people will want to go and buy their fresh foods locally. And if we can play on that effectively, I think however, the macro environment works, I think we've got a chance of getting to what we need to get to within the context of how we've positioned our omnichannel business, how we're going to market the business. And hopefully, we're going to create the kind of excitement inside of stores that people feel that, that's where they want to go with sampling. And you can't do something online. And that's one of the reasons why it's quite an important part of the differentiation. People like eating and trying food out.

Absolutely. So let's dig a little bit more into the digital business. Maybe you can -- it's found upon Sprouts' capabilities on the digital front, you kind of alluded to the pickup. In addition, though, with such a meaningful change in the penetration, what should investors understand as it relates to margins. And the profitability of that e-commerce business.

Yes. So it's a good question. It's something that we get asked a lot. And it's one of the things I've been encouraged by it. If you look at the evolution of our profit through the last 18 months or so, that's been done in the context of 2% to 14 foot. That context shows that it didn't absolutely kill us. They offer the e-com mix within our business. In many ways, you would have expected it to and I think one of the dynamics of Sprouts, which I wasn't as aware of until I got here is the margin mix of the business is pretty similar. So you don't have this concentration of certain items at very low margins. And certain items are very . So the basket becomes very important to how the margin flows through. So you got the CPG. If you are grocerying, other CPG stop at low margin, how do you sell higher-margin stuff in GE. We're not in that space. And that almost whatever people buy, we're making the equivalent. So mix doesn't become as a big an issue. The other trend that we found is that the basket is much higher in e-comm for us. So you actually get a bigger basket when people are going on e-com. And that's allowed us to flow this through. And Instacart is a good -- we have a good working relationship. Those guys did a good job for us through the pandemic, and we continue to work with them. In terms of how we can evolve the profitability. For example, on all of the pickup, we put our own people in to do the picking in the stores for the pickup order as opposed to having Instacart or having the contractors and doing that, however, you would describe that group of people, as is doing it. So our people can do it more efficiently because they know where things are. They don't have to want they're out asking us this was that. And the knowledge of our product base makes that skill actually more difficult in Sprouts. And it would be just -- you could probably go into 2 or 3 different conventional grocers and do this job just as equivalently because the products are all much of a muchness. In our environment, the people need to know what they're doing. So we've been able to drive some efficiencies into that in conjunction with the pickup. And we're looking to do that more on the delivery side as well. So that our people involved in it mitigates some of them. Clearly, we don't make as much margin, but we make a good margin that's allowed us to deliver what we need to deliver. But there's things we can do to even mitigate that. And on top of that, the one thing of e-commerce that we're really at the infancy of is, how do we take the data from that and really learn how to evolve our merchandising and our marketing, how do we evolve? And how do we join it? Make it a true omnichannel marketing message that says you come into the store and it suits you and you get it delivered when it suits you to do that as well. So that's -- we're doing some specific work on that data wise, and we're hoping to have a very strong -- and we have a very strong working relationship with our partners in this space.

That's great. That's great color. Another big topic of focus is inflation. What level of inflation are you seeing in your business? How difficult is it to pass-through higher food prices? And what's kind of maybe your updated outlook on where inflation is going to shake out for this year?

Yes. The inflation topic has been -- it's different for us than many others. The thing that's the same for us as any others is proteins. We're seeing a fairly substantial increase in cost prices in proteins driven by what's going on in the marketplace. And we're passing on the most of it, but not all of it, and we're changing our assortment in that. But the rest of the store, we're feeling pretty comfortable that whatever is happening, we're in a good place to manage it going forward. The Federal Reserve Bank keep telling me that inflation is temporary and that we don't have to worry about it going forward. And the whole thing is going to go away, and it's just a temporary blip as demand as demand outstrips supply and everything will be fine in a few months' time. I'm not sure about that, Paul. But with that said on the conversation we have with them, and it's interesting having that debate, I think transportation is likely to be a pressure point, both in operating our business and in the vendor base coming towards us. Labor has been, again, a problem for us, not a huge problem, but certainly a problem with drivers and in the transportation space. So I'm expecting not huge inflation, but I'm expecting inflation to go forward. Our challenge for it is how do we make sure it doesn't stop customers coming to the stores and spending, and it doesn't affect our margin and our profitability. We've got -- again, because we've got such different assortment, we're working very hard at elasticities. What -- on an item basis can an individual product sustain if it gets [indiscernible] dairy and frozen, we're probably getting less increases than the CPG driven increases in the conventional space, but we are getting some in our Produce business where because we've changed the buying round a little bit, we think we're mitigating some of the pressures of transportation and label and purchase going forward. So having said all of that, we're expecting a little bit of inflation. We think we can manage it in our own way within the context of our compromising our guidance going forward. And we're watching it really closely. Labor is one of the consequences of what's happening in the marketplace that we, again, are hoping is temporary. It's accelerating our thinking on what we need to do regarding self-checkouts regarding electronic shelf points of sale or regarding systems for inventory at the back. But we're trying to mitigate some of the impacts of inflationary pressures in the economy coming from labor. But it's a very large topic, as you can imagine, and something that we're constantly looking at. But as I say, if it's temporary, then it's different.

Indeed, indeed. That's certainly a question mark on whether it will be so temporary. Look, I would tell you -- well, it's obviously very clear you have a lot of differentiation in your assortment. So the question is, where there are similarities to competition in Walmart and others. What should investors understand about your relative price gap or strategy? And what are you seeing on those particular items from a promotional standpoint in the marketplace?

Yes. Well, promotions wise, we're not seeing any crazy rationality. I think it's irrational sending paper flyers to people's homes, but people are still doing that. But that's kind of a different point. The highly aggressive high-low pricing or Memorial Day didn't happen. I don't know if it'll happen in the summer, we'll see, but we didn't see anything crazy happening there. And as I've said, and you kind of said it yourself there, Paul, we worry less in the kind of Coca Cola's and CPG space because we don't sell it. Whatever happens there is going to be what happens and it doesn't affect us too much. The area of the store that's most important from this is produce, how important produces as a mix to our business, well over 20% of our business is produced. But -- so we look very hard at that. And we're we are consistently 15% cheaper than anyone else in that space. And we really doubled down on organic projects, whereas 30-odd percent of our product mix is organic. Nobody's got anything like that as a mix, unless you're very specialist. And so that differentiation on price and organic is what a lot of people do in the conventionals, they sell the conventional produce at a price, but they make their extra margin on organic and that's something that we do the opposite to, and it's always been the premise upon which sprouts got going. So we focus aggressively on price differentiation and produce. Proteins is what -- the 2 areas of the store that I think most about are we at the right prices vitamins in our vitamins business, which is how do we get that right and proteins: Meat; chicken; pork. What we're doing on our meat business is trying to be very much differentiated so that we get away from the crazy promotions. We can't win a high-low battle on natural -- on conventional chicken with anybody. We can have the odd week where we're at the right price, but we're not going to go back to doing that. What we're going to do is make sure that we try and differentiate, how do we get to antibiotic-free before everyone in a space where it's exclusively products and differentiation. That's the challenge in protein for us. We don't know where we need to be yet. We did it last week from Memorial Day on our beef with Angus grass-fed thing, which is different, no one -- and all we're selling. But then you can price it at a level that differentiates the product. And that's increasingly how we have to deal with it outside of produce. How do we have things that are different? I'm not too worried about the conventional grocers going crazy on pricing the rest of this year. I haven't seen any evidence of it yet, maybe so as it goes into the second half. Within that second half, as we watch this going forward, we'll make sure our produce pricing is right and aggressive. We'll make sure that we're putting value in front of customers and where we've got differentiation. So we're still promoting in our frozen dairy and grocery business, probably 25%, 30% of our items are on promotion any one time. But these are just not these crazy promotions on trade, and we'll continue to look at the elasticity in that and see how best to manage those categories and we're thinking hard about our vitamin department in terms of what do we need to do to kind of come back those very low -- a lot of our people in that -- the competitors in that space are selling fewer SKUs. And we've got great expertise. I'm very proud of the people that work in that department. And if we can get the customer really listening and talking to the expertise that we have in that department, we see that as a key differentiator within the context of price being a challenge.

Got it. Got it. So let's maybe turn the discussion towards real estate. How -- what can you tell us about the store growth plans? You mentioned earlier kind of 10%, maybe discuss a bit more of the detail around the changes you're making through the box size and also where will these stores be located?

Yes. Good. So the real -- we've reorganized the real estate department. Our aspiration is to get to 10%. Our aspiration is to build smaller stores. We're targeting 23,000 square feet stores, and it will be any plus or minus from that, depending on the locations. And that contrasts 30,000, 32,000 that we're building in what we call V5. We're into what the seek version 6 is we're at at the moment. And we'll have 2 of them on the ground in July, 5 of them on the ground before the end of the year. And all of our stores in 2022 will be 23,000 square feet-ish, depending on how that -- we might even try some even smaller ones than that going forward. That allows us to build the stores at 20% cheaper. The format that we've got, I think I touched on it a little bit, we'll double down on an innovation center, we'll double down on frozen foods, we'll reenergize our produce business. We'll have less noncustomer-facing space which is probably 30-odd percent in our current portfolio. So we're going to cut that back much closer to what we did in the original stores that were built. And we'll double down on center plant-based and meats where we want to be more of a destination for the attribute-based center of plate product. So that's how the format will come alive, and we're excited about where that will come. And it will be rebranded as well, and we'll see how that goes in a little while. So that's better returns. Similar, higher sales per square fruit a similar top line Orcas on cash. And that's all the numbers that are rolled up into that. I think we've gone through with the Investors [indiscernible] at various times on this. So the kind of numbers are there. We've now got to go and make it happen. We have to slow down the 2021 one partly because I was changing the formats and partly because of COVID. So we've got a big chunk happening in Q4 this year, and then we'll be on our 10% cadence by 2022 to 35, 40 stores a year going forward, which is a -- I don't know anybody, there's not too many people building that number of stores. So we're excited about that. And with regard to the geography on that, Paul, how that all comes alive, we've identified -- we've actually identified every catchment area in the nation and said how many health enthusiasts and innovation seekers are in that catchment area and how many do we need to sustain a store. So we know exactly how many they are across the country. We then said, is it within 250 miles of our fresh distribution centers, we've added 2, 1 in Orlando and 1 in Colorado. So we've now got 8 -- 7 distribution centers. We hope to have 8 in due course. We'll do another one up in the Mid-Atlantic, when we've got enough of our base to do that. So then you say, we're only going to build stores within 250 miles of those distribution centers to get the quality of fresh foods that we want in those stores. And so that's narrowed us down and has got it down to probably -- it's probably about at least 600 opportunities in front of us to get -- so there's plenty of -- plenty of opportunity for us to build 35, 40 stores within the lifespan of how we're thinking about this 3 to 5 years. So that's led us to Florida being an important development for us, lots of customers there that look like the customers that like -- as Texas, particularly Dallas and Austin, we see as a real big opportunity. Southern California remains a huge opportunity. The whole gap -- all the whole [indiscernible] alley in North and alley in South, we see real opportunities and a little bit of opportunity in Colorado, not quite as big as the others there. And once we really -- it's going to take a bit longer to get the store base there, but Baltimore, DC, that whole Virginia area, and what they call here, the mid-Atlantic, that mid-Atlantic area. We've got a very successful store in Philadelphia. So Philadelphia down to Baltimore, not kind of region there. That's where the real estate team are focusing a lot of energy. And we're having real estate meetings every 2 weeks with lots of propositions and lots of top and part of the challenge of real estate for us is not just -- is there enough people, but have we got the right sites, have we got the right development and can we make the economics work. And it's -- from a bandwidth point of we were expanding our bandwidth to be able to do this. We've appointed new executives who knew the area in Texas and Florida and Baltimore and [indiscernible]. We're appointing new people to really -- who really understand the real estate space. So we're confident we can get this done. We're confident in the returns. And I'm really super pumped to what we're going to be doing in the next few weeks in that. So we'll see and we're testing a few things, and we'll see how that evolves and develops going forward.

So real excitement, obviously, there on the new store front with the new format. But what about your mature stores, right, maybe kind of going back to the question on comps, how should we think about our ability to really continue to improve the productivity out of your current fleet?

Yes. So there's a couple of things there in terms of top line, how do we need to -- there are things we will go back on when we've learned it from the next few stores we're doing, there's some exercises we're in analyzing. First of all, and I keep saying that I'm excited, because I'm excited about a -- is the innovation center. How do we take that innovation center and take it back into the existing fleet to drive the excitement? We're doing some specific work as to how we can do that. And we think we can get a pretty big impact in 150 stores on that over the course of the next little while, and then we'll see where we can go get into more stores. That's an opportunity for us how to build on that. The bulk has been a really important part of the heritage of the company. The fact that people can access exactly what they want in an environmentally sustainable way and at a price that gives them an advantage over packaged grocery. We have had that bulk. It's been a really tough year for bulk because of the -- we're not allowed to sell it basically, and you had to bag it all up and all the costs associated with it. So as part of our exercise going back, we're looking very in a detailed way about gravity feed, so that there's less digging around in the bends. And there's more of an opportunity. But we do believe our customers really like this and our target customers, in particular, they like the value and they actually like the sustainability of it. So that whole context of bulk is something that we're looking at do we go back -- given that we're going to have to go back to selling in some way, we'll start off going back to doing in conventional way, but we've done a number of tests on that. So you'll see the bulk fixtures evolving and changing. We see innovation centers coming into the business. And then in terms of operating the stores, you'll see more self-checkouts. We've done a good initiative so far on that. There's going to be rolling -- we're doing some tests on electronic shelf labeling. So that we don't have as much price. When you've got a high SKU count, one of the things again, I learned about the company, we've got such a high SKU count. The execution of simple things like prudent tags on all is much more difficult than it was at Walmart or Tesco or anything like that. It's just a much bigger exercise. So putting some investment into that, will help us get more efficient in terms of how we work that. And the exercise of getting the product from the back room to the shelf, that flow of inventory into the stores because, again, we're high SKU count, we're not as efficient as we could be. So there's a number of investments in systems to help us do that flow through. So the whole supply chain feeding into the stores, we need to make things easier for the stores to do, so that they can focus on actually talking to the customers and selling to the customers, the attributes and the new products, the sampling. Our people, our team members talking and -- They're good at it, talking and speaking to customers, not running around doing the kind of basics of the job, which actually we're a bit behind the April on that.

Understood. Only a few minutes left. Maybe just very quickly, for investors that turn and kind of look at more recent performance, what is it that they should understand in terms of the puts and the takes in the business? On one hand, I think some investors would see that comps have maybe been a little light. But on the other, you've been steadily raising your EBITDA guidance for this year. What are some of the puts and takes on more recent performance?

Well, the answer is, as I said at the [ outside ] here, Paul, what we've been doing in the last 12 months is getting the platform to allow us to have the right P&L that allows us to give us real confidence going forward that this is a superior margin business relative to what people bracket as a conventional growth. That's not who we are, and that's not what we are. And I think we're trying our best to demonstrate that with the numbers over the last little while, and we'll continue to try our best to demonstrate that going forward. With regard to that, it then builds on our merchandising and our marketing efforts. And the way I'm judging the success of our business is, are we growing market share with our target customers? Nor are we growing comp sales faster than somebody else. And the puts and takes in that for us, you touched on it a little bit, how much e-com is sucked away some of that business and how fast will it come back. The puts and takes on this are, we consciously lost traffic which had been much clearer if there hadn't been a pandemic, exactly what has happened when we changed the promotional cadence of the business and the loss of the of the promiscuous coupon clipper would have been more obvious in the context of things changing. So as it goes forward, I'm expecting the experiential side of our business to continue to drive more market share from our target customers. And that's how we'll judge ourselves going now. We don't need many people for this thing to work. We're only $6.5 billion. We can more than deliver on what we've said we've delivered with a few extra people out of that $2 billion were $6 billion of $2 billion. We can grow market share, very small amount and the whole thing adds up. And that's what I think gives me a lot of confidence. We're not reaching for any stars here. This is a practical logical kind of let's just grow a few dollars from the wallets of those target customers. And all of those economics come right for us. And it will be a combination in our less mature markets. They'll be about building traffic and explaining to people who we are. And in our more mature markets, they'll be able to drive in the basket and driving a few more dollars from those people that already kind of love us. So I mean that's what we're pitching, and that's what we're thinking at the moment. That's what we're working on.

Well, that's great, Jack. I think that's a perfect place to end it. I want to thank you for your time. This will conclude our fireside chat with Sprouts Farmers Market. Thank you, everyone.

Thanks so much, Paul, and thanks, everyone, for listening. I appreciate your time.

Thank you.