Wednesday, January 25, 2012

Sprouts Farmers Market and Sunflower Farmers Market Ink Acquisition-Merger Deal

The Insider - Heard on the Street

In my November 6, 2011 column - Roll Up Times Two? Sprouts Farmers Market In Talks With Sunflower Farmers Market About Possible Acquisition - I reported that representatives of Arizona-based Sprouts Farmers Market and Colorado-headquartered Sunflower Farmers Market were engaged in negotiations regarding either an outright acquisition of Sunflower by Sprouts' or a merger-type acquisition of Sunflower Farmers Market into Sprouts Farmers Market, with Sprouts' and its majority-owner private equity firm Apollo Global Management absorbing Sunflower into Sprouts' corporate structure and operations, like it did with the Henry's Farmers Market deal last year.

Today I can report that, according to my sources, Sprouts Farmers Market and Sunflower Farmers Market have reached an agreement in principle for such an acquisition-merger, which they currently plan to announce no later than two weeks from today, assuming some additional details and specifics can be worked out between the two farmers market-style grocery chains.

My sources tell me representatives of both grocery chains have signed a memo of understanding or letter of intent to merge the two food retailing companies, with Sprouts Farmers Market in the lead role, and that those additional details and specifics are currently being negotiated on by the two chains.

Neither Sprouts Farmers Market or Sunflower Farmers Market has publicly announced they've been engaged in deal talks, nor have they confirmed or denied my November 2011 report. Additionally, based on my research using the major Internet search engines, no other publications besides Fresh & Easy Buzz have reported on the deal talks to date.

Sprouts Farmers Market currently operates 103 farmers market-style grocery stores in California, Arizona, Colorado and Texas.

The retailer closed three stores - Rollingwood, Sunset Valley and Anderson Lane -  in Austin, Texas, in December 2011. The store closings were the result of having too many units too close to each other in Austin, following the Henry's Farmers Market merger last year. Henry's had some Sun Harvest banner stores in Austin which were nearby existing Sprouts locations, resulting in the duplication issue. No other Henry's or Sun Harvest banner stores have been closed to date.

Sunflower Farmers Market operates 35 farmers market-style stores in eight states in the Western U.S. - Colorado (12), Arizona (7), New Mexico (6), Nevada (2), Texas (2), Oklahoma (1), Utah (3) and California (2).

The Sunflower format, as was the Henry's Farmers Market format, is virtually identical to Sprouts Farmers Market's format.

Based on information given Fresh & Easy Buzz by the chain late last year, along with my analysis of added sales from new stores open since then, I estimate that Sprouts Farmers Market currently has annualized sales in the $1.2 billion-to-$1.4 billion range.

Additionally, based on conversations with sources at Sunflower Farmers Market, I estimate the chain's current annual sales to be in the $600 million-to-$700 million range.

Neither grocery chain is publicly-held. Therefore Sprouts and Sunflower don't released annual sales publicly as a matter of record. However, senior executives of both chain's publicly mentioned annual sales numbers in interviews last year. I expect a mention of those metrics to be made again as part of any deal announcement.

Both Sprouts Farmers Market and Sunflower are expanding rapidly, focusing in large part on the same Western U.S. States.

For example, both farmers market-style grocery chains are putting a major new store opening emphasis in Northern California for 2012, where each plans to open numerous new stores this year.

Sprouts and Sunflower both also plan to open new stores (one each respectively) in Phoenix, Arizona this year, along with in Colorado.

Sunflower Farmers Market though, unlike Sprouts, has a wider geographical reach with its growth strategy, currently operating in eight states, compared to Sprouts Farmers Market's presence in four states, which are California, Arizona, Colorado and Texas.

For example, in 2011 Sunflower Farmers Market expanded into Northern California and Oklahoma, where it plans to open at least one new store this year, which will be its second unit in the state.

Sunflower currently has two units in California, in Roseville near Sacramento and in Modesto, which is in the Northern Central Valley. It currently has plans to open four new stores in Northern California this year.

Sunflower Farmers Market has no current plans to open stores in Southern California, which is where Sprouts has the highest number of stores out of its total store base.

Sprouts Farmers market currently plans to open at least three stores in Northern California this year.

A deal with Sunflower Farmers Market (a combined Sprouts Farmers Market and Sunflower) will give Sprouts' an immediate presence in four additional states - Nevada, Utah, New Mexico and Oklahoma. All four of these states fit well geographically with where Sprouts Farmers already is geographically.

Additionally, Sunflower's growth focus in Northern California, which mirrors that of Sprouts Farmers Market - and the fact it has no stores in Southern California (no duplication) - is also synergistic in terms of a combined Sprouts' and Sunflower, as is the fact the two grocery chains operate stores of the same farmers market-style  of which are virtually identical to the Henry's Farmers Market chain. Sprouts' has now changed all the Henry's and Sun Harvest stores to the Sprouts Farmers Market banner.

To put is directly, a year ago there were three farmers market-style grocery chains in the U.S. - Henry's, Sprouts and Sunflower - all operating in the same Western U.S. states. Today there are just two - Sprouts (with the combined Henry's) and Sunflower Farmers Market. If all goes according to plan, there soon will be just one such chain, Sprouts Farmers Market (the combined Sprouts, Henry's and Sunflower), otherwise know as the house the Boney family built.

A little over one year ago I broke the news in this January 5, 2011 column - Will 2011 See Sprouts Farmers Market Acquiring Henry's Farmers Market? 'The Insider' Says it Could Be in The Cards - that Sprouts Farmers Market and the owner of then Irvine, California-based Henry's Farmers Markets were engaged in talks involving an acquisition/merger deal between the two farmers market-style grocery chains.

In a series of follow-up columns - and in various news stories published in January and February 2011 in Fresh & Easy Buzz, we further reported and developed the story, adding new information about the deal talks between private equity firm Apollo Global Management, which owned Henry's through its Southern California-based Smart & Final LLC retail company and is now the majority-owner of Sprouts Farmers Market.

On February 15, 2011 Apollo Global Management announced through Smart & Final that it would merge its Henry's Farmers Market chain with Sprouts, in a deal that would give Apollo majority ownership of Arizona-based Sprouts Farmers Market (the combined Sprouts and Henry's chains), with Henry's being absorbed into Sprouts' existing corporate structure and operations.

On April 15, 21 I reported that the Sprouts-Henry's deal would be final on April 18. [See: Sprouts Farmers Market's Acquisition-Merger of Henry's Farmers Market to Be Final On Monday, April 18.]

On April 18, 2011, Sprouts Farmers Market announced the deal was final in a press release. [See: Sprouts Farmers Market Confirms Our April 14 Scoop: Sprouts' Acquisition-Merger of Henry's Farmers Market Final Today.]

The Devil is always in the details, as I carefully noted at the top of this column. But, according to my sources, where things stand today, what I've called the (farmers market-style food and grocery retailing format) "Roll Up Times Two" (Henry's being the first one) is on the way, unless the Devil messes with those details.

- The Insider

[Readers: Our extensive reporting, analysis and commentary of and on the Henry's Farmers Market-Sprouts Farmers Market deal in 2011, the Sprouts'-Sunflower deal talks, and much more can be found at these links: , , , , , .]


Anonymous said...

Dear Insider,

I'm surprised you are not aware that two Henry's locations in Temecula, CA continue to soldier on with the Henry's trade name.

Usually, you have been spot on with everything to do with Sprouts.

Another retailer by the name of Sprouts Natural Market has operated in Temecula for over 20 years.

For all practical purposes, the two Henry's stores have been converted to the Sprouts format, except the Sprouts name is removed when identifying Sprouts private label products, departments, advertisements and signage.

In the case of private label products branded as "Sprouts", the "Henry's" and "Sun Harvest" trade names are used.

Also, to keep the Henry's trademark from expiring, Sprouts carries a few items throughout their stores that are branded as "Henry's".

Sprouts management is keenly aware of the use-it-or-lose-it rule that hit Albertson's and their use, or really non-use of the Lucky trademark.

What did surprise me are the two licensee locations in Chula Vista, CA that converted to Sprouts from Henry's. I had heard that the owner was none too pleased to spend money out of his pocket to change out signage. The licensee also carries a different variety of products in his two stores, keyed to the demographics of his immediate trade area. His weekly ads are more price driven than the corporate Sprouts stores.



Fresh & Easy Buzz said...


Thanks for your detailed comment on the trademark situation between the two Sprouts Natural Markets' and Sprouts Farmers Market, as it pertains to the two stores in Temecula that still fly the Henry's banner, ect.

I'm (and so is Fresh & Easy Buzz) aware of the Sprouts Natural Market-Sprouts Farmers Market issue with the two stores in Temecula.

Sprouts Natural Markets filed a trademark infringment lawsuit against Sprouts Farmers Market LLC (the Arizona-based chain in November 2011, along with asking the court to issue a preliminary injuction against Sprouts Farmers Market prohibiting it from using the "Sprouts" name in any market where the two grocers compete - ie: Temecula.

It was filed in Riverside County, California Superior Court. This was granted, which is why the two stores still fly the Henry's banner.

The case is still in court. Hard to say which way it will go. Sprouts Farmers Market would also like to "work something out" with the owners of 2-store Sprouts Natural Markets, I'm told.

I didn't get into it in my story, frankly, because I don't see it as a significant issue one way or the other for Sprouts Farmers Market. If the two stores have to remain under the Henry's banner it isn't going to matter in the grand scheme of things.

Sprouts could also sell one of both of the stores, which wouldn't matter in the grand scheme of things either.

Or even more interesting, it could rename the stores completely. That could even be fun - change the format a bit, use the stores to test new concepts, ect., all under a different name.

But I wouldn't assume Sprouts Farmers Market will be prevented by the court from ever using the "Sprouts" name on the two stores. In fact, if I had to bet on it I would say they end up being able to do so.

Regarding the licensee issue, the owner of those 2 stores, you are again right on.

I suspect the owner will probably benefit from converting to the Sprouts banner though, which by the way I think he had no choice in doing because I'm told it's part of the agreement/contract.

After all, all but a handful of consumers know the stores are operated under a franchise-type arrangement. Therefore I think he will benefit from the synergies of all the other stores in Southern California being called Sprouts Farmers Market, accept the 2 in Temecula at present, of course.

Regarding the Sun Harvest private brand, which the old Henry's converted the Henry's private label brand two, there is also an interesting issue, which is that Smart & Final, which is owned by Apollo Global Management, which is now the majority-owner of Sprouts Farmers Market LLC, actually developed the brand during the time Henry's was owned 100% by Apollo and was under Smart & Final in twerms of its ownership structure. Smart & Final stores still carry a limited selection of the Sun Harvest natural and organic items.

Thanks for participating!

~ The Insider