Here's why organic grocer Sprouts could stunt Publix's growth

Nov 6, 2015, 2:45pm EST

A relative newcomer to the organic grocery game may be growing into a competitive threat to Publix Super Markets Inc.

Sprouts Farmers Market (Nasdaq: SFM) on Thursday reported third quarter earnings that show a specialty grocer in growth mode, with sales, profits and same-store sales up over the third quarter of 2015.

Interior of a Sprouts market

RICK GAYLE STUDIO. INC.

Sprouts, based in Phoenix, has been slow to expand in the Southeast. But it will have 10 stores in metro Atlanta by early 2016 and is rumored to be scouting the Interstate 4 corridor, between Tampa and Orlando, for sites for a first Florida location.

A Sprouts spokeswoman did not immediately return a request for comment Friday afternoon.

Lakeland-based Publix has been thriving in the face of increasing competition from new grocery concepts. Trader Joe's and sister store Aldi have both expanded throughout Florida over the last few years. The Fresh Market andWhole Foods Market Inc. (Nasdaq: WFM) have both been opening new stores in Florida, too.

Notwithstanding the competition, though, Publix's financial reports have never been stronger, with the grocer on track to crush its record year in 2014.

But one analyst's commentary on Sprouts shows why it may present a challenge to Publix: Sprouts is succeeding at luring in mainstream grocery shoppers. Publix manages to appeal to a wide spectrum of grocery shoppers, between offering more organic and specialty products and discounts like buy one, get one free offers.

"It is notable that the majority of new primary shoppers have defected from traditional grocery stores rather than from specialty organic or health retailers, perhaps underlining the mainstream appeal of Sprouts’ proposition," Carter Harrison, a retail analyst with Conlumino, wrote in a research note.

One of the keys to Publix's growth has been the addition of more organic and specialty items — a transition that's helped the grocer snare market share from Whole Foods, which continues to struggle.

"Sprouts’ ability to persuade customers to defect is a vital skill in a market that is saturated and crowded with grocery choices," Harrison wrote. "It is also a testament to the company’s points of differentiation, the primary one of which is helping consumers make healthy choices without too much damage to their wallets."