Dive Brief:
- Scott Mushkin, an analyst with Wolfe Research predicts there may be a greater chance of a merger between Sprouts Farmers Market and Fresh Thyme Farmers Market than of Sprouts being acquired by another grocer, according to Supermarket News.
- The CEO of Fresh Thyme, Chris Sherrell, was once a longtime executive at Sunflower Farmers Markets before Sprouts merged with the company in 2012. Fresh Thyme's format is very similar to Sprouts, and is backed by Meijer Inc.
- “It makes sense that if you want to grow, to buy capacity, rather than build it, in my opinion,” Chuck Cerankosky, an analyst with Northcoast Research, told Supermarket News. “I think Fresh Thyme would be a pretty nice fit with Sprouts. I was at the opening of one here in the Cleveland area, and if you put me in there blindfolded and asked me what store I was in, and you told me it was a Sprouts, I’d believe you 100%.”
Dive Insight:
Since Amazon's $13.7 billion bid on Whole Foods, Sprouts has been thrust into the spotlight, with many analysts predicting the natural discount grocer could be the last viable takeover candidate among publicly traded markets. The grocer's stock has risen 3% during the past three months, leading JPMorgan analysts to believe it could be ripe for a strategic bid.
Sprouts' strong partnerships with farmers allows it to buy excess produce at below-market prices and quickly get it to the store — a grocery model that's difficult for large conventional chains to emulate. Both Target and Albertsons have been rumored to be interested in a Sprouts deal, which could give Target better fresh merchandising opportunities and Albertsons the long-awaited chance to go public, according to Supermarket News.
Still, Wolfe Research analyst Scott Mushkin told Supermarket News Sprouts doesn't have enough distribution scale or brand recognition to truly improve operations for Target. It's also believed that Alberstons did try to make a deal to buy Sprouts earlier this year, but that the two grocers couldn't reach an agreement.
It's possible that Sprouts' growing success has raised its price beyond the reach of potential acquirers. In its earnings report for the second fiscal quarter of 2017, the natural and organic grocer saw sales spike 15%, and the company plans to roll out 32 new stores this year, expanding its retail footprint to 300 locations. Some of these new stores will be in competitive markets such as Florida and North Carolina.
This seems to strengthen Sprouts' position as a potential acquirer. If the grocer were to look for a deal, it would make sense to consolidate with Illinois-based Fresh Thyme given their similar formats and connection with Fresh Thyme CEO Chris Sherrell, once the head of another natural chain that merged with Sprouts. The supermarkets also could benefit from a broader retail reach if they joined forces. Each grocer operates in a distinct area — Sprouts in the South and Southwest and Fresh Thyme primarily in the Midwest.
This partnership could take some of the wind out of Whole Foods' sales, but Amazon still has a digital advantage. As a result, some analysts feel it's unlikely the chains will want to make significant investments in brick-and-mortar expansion. Only time will tell if Sprouts will decide to make a deal with Fresh Thyme or any other grocer, but its strong Q2 suggests the grocer has what it takes to survive in the new Amazon-dominated grocery landscape on its own — for now.