A Sprouts Farmers Market store in Los Angeles. (Wikimedia Commons)

A Sprouts Farmers Market store in Los Angeles. (Wikimedia Commons)

New health food grocer to open near Mill Creek sports arena

MILL CREEK — A fast-growing healthy foods grocer is coming to Mill Creek.

Sprouts Farmers Market plans to move into Gateway Shopping Center, next to indoor recreation company Arena Sports’ new complex. City officials hope the two businesses will draw new shoppers and visitors to Mill Creek.

The Phoenix-based grocer has rapidly spread from coast-to-coast in recent years. With plans to open 32 new stores this year, its expansion pace is not slowing down. So far, all of its more than 260 stores are located in the South, Southwest or California. The Mill Creek location, which is expected to open in 2018, will be among its first stores in the country’s northern states.

Sprouts has filed with the city for a permit to make tenant improvements. It is taking over about half of a former Safeway location, which has sat vacant for nearly two years. Gateway Shopping Center’s owner, Kimco Realty, lists Sprouts as a tenant.

However, the grocer declined to comment on its plans in the area.

Given brick-and-mortar retail’s struggles across the country, Mill Creek city leaders are working on a plan to attract more businesses catering to people with active lifestyles, said Rebecca Polizzotto, Mill Creek’s city manager.

The addition of Arena Sports, which is slated to open this fall, and Sprouts could provide a core for the city to build around. “You can drop your kids off at Arena Sports to go rock climbing or some event, and go grocery shopping,” Polizzotto said.

The city is considering connecting the parking lots between the two adjacent sites to make that even easier to do.

In recruiting businesses for the area, “we focus a lot on the recreation component and special retail niches that add to ambiance of community and support long-term tourism” growth, she said.

An outdoor recreation area, Mill Creek Sports Park, is a short walk from Gateway Shopping Center.

The city is a good fit with Sprouts’ target markets, as described by its chief executive, Bradley Lukow, in public comments.

“We target middle America, middle income to slightly higher (income)” shoppers, he said at the DeutscheBank Global Consumer Conference on June 15.

Lower prices on high-quality produce are a key customer draw for Sprouts. “We are absolutely committed to ensuring we’re maintaining our price positioning in the market,” Lukow said. The company does “weekly price checks market-by-market” on all produce items. “And we are 20 percent to 25 percent better-priced than our nearest competitor,” he said.

Sprouts’ stores are focused in densely populated suburban markets. The company’s model store, as described in a presentation to investors in May, is a compact layout across 30,000 square feet — about half the size of a typical national chain grocery store — with low displays to create an open feel. The key draw — lower priced produce — is at the back, ensuring customers see plenty of other products that are more profitable for the company.

Arranging a store to improve earnings is a staple of the grocery industry, where margins are thin and costs are high.

Sprouts also has been collaborating with Amazon Prime in a handful of test stores to allow customers to order fresh food and other groceries online. The company has not said if it plans to expand that offering. In June, Amazon acquired Whole Foods as it seeks to expand its presence in the grocery business.

A buyout might be in Sprouts’ future, as well. The company reportedly was in merger talks in March with Albertsons.

David Livingston, a grocery industry analyst and owner of DJL Research, is skeptical about the company’s expansion, which appears to be fueled by debt rather than cash from profits.

“Their sales per unit really aren’t that successful,” especially when compared next to Whole Foods or Trader Joe’s, the only two healthy foods national chains, Livingston said.

“If you’re using debt to expand, I’m very cautious,” he said.

Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com; Twitter: @dcatchpole.

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