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RETAIL VIEW: Sunflower targets transitional produce consumer

With about one-third of its floor space devoted to fresh produce, the burgeoning Sunflower Farmers Market supermarket chain, headquartered in Phoenix, is targeting consumers looking to buy great fresh produce at prices that are much less than what is seen at high-end retailers.

Sunflower
The Sunflower Farmers Market supermarket chain adheres to a business model that allows it to offer top-quality produce, including an expanded organic lineup, at prices that are lower than high-end chains.

“I can’t tell you exactly who our ideal customer is,” said Mike Phillips, director of operations for the nine-year-old chain, “but you can say we are looking for that transitional consumer who is very interested in nutrition and good produce but not quite able to shop at Whole Foods.”

Mr. Phillips said that Sunflower’s business model allows it to offer top-quality produce, including an expanded section of organic items, at lower prices than other natural food stores, such as the aforementioned Whole Foods chain.

“We run pretty lean,” he said. “We don’t need the margins that other chains need.”

Mr. Phillips said that Sunflower can put up a store for much less than most retailers, which gives the chain low operating costs. He said that most of the savings come from taking over existing stores and buying used equipment.

“We care about what’s on the shelf, not the shelf itself,” he quipped.

The longtime Sunflower employee, who has been with the firm since it opened its first store in Albuquerque, NM, in 2002, said that the retailer has an in-house construction team that scours the country looking for good, used equipment and good real estate.

“We’ve got a lot of our equipment from Albertson’s,” he said. “When they close down a store, it is a lot easier for them to just liquidate everything in the store.”

In such a case, Sunflower will come in and buy that used equipment at bargain rates, which allows it to significantly reduce the cost of its new store openings.

In fact, Sunflower’s web site touts its low cost philosophy: “We keep our overhead low. No fancy light fixtures or high rent. No corporate headquarters — just regular people, like you, looking for the best deals we can find.”

Sunflower was founded by Michael Gilliland, who also started the Wild Oats supermarket chain about 25 years ago. Mr. Gilliland recently resigned as chief executive officer of Sunflower amid a personal scandal and was replaced by Chris Sherrell, who also has the titles of president and chief operating officer.

But Mr. Phillips said that the chain was not patterned after Wild Oats, which he said also tended to target a higher-end customer.

“I’d say we are closer to what Henry’s Farmers Markets (a Southern California chain) started out to be,” said Mr. Phillips. “Whole Foods (which bought Wild Oats) is much different. They are going after a different customer. They sell $13 ostrich eggs. We don’t do anything like that. We are going after fast nickels. Our goal is to turn over our inventory very quickly.”

But Sunflower still is aiming to appeal to customers looking for that often higher-priced organic item. Mr. Phillips said that on any given day, Sunflower Farmers Market will stock about 100 organic produce SKUs.

“Organic represents about 15 percent of our produce sales,” he said.

Sunflower opened 11 stores from 2002 to 2005, its first three years of operation. “We then took two years off from our growth mode to catch up with the stores that we had opened and to get our business model in place,” said Mr. Phillips. “After that two-year break, we opened up 20 more stores in the next three years.”

That growth rate has continued. The stores are currently located in six states in the southwestern quadrant of the United States. There are 12 stores in Colorado, seven in Arizona, two in Nevada, six in Mew Mexico, three in Utah and three in Texas.

Over the next several months, the supermarket will move into California with two new stores and Oklahoma with another one. Growth in California and other states is expected to accelerate over the next several years.

“I’d say two or three years down the road we should have about 50 stores,” Mr. Phillips said.

He said that regardless of the outside dimension of a store, sales space for each is only 25,000 to 30,000 square feet. He said that this size is easy for customers to navigate and also allows the retailer to cut down on its overhead.

If the existing building’s dimensions are much larger than that, Sunflower adjusts the size of the stock rooms rather than the sales floor.

Sunflower Farmers Market has a 150,000-square-foot distribution facility in Phoenix, where it also houses its procurement offices and executive team.

“This facility is large enough to handle our growth up to the 50-60 store level,” Mr. Phillips said.

He said that expansion would continue with Texas being about as far east as the chain will wander, and Northern California being the furthest spot north and west.

In the future, Sunflower may open a satellite distribution center in another location that will allow it to expand its reach, he said, but currently it can’t get too far away from the Phoenix warehouse.

About 95 percent of the firm’s produce is bought through its Phoenix produce procurement team, but Mr. Phillips said that each store can also line up local produce suppliers.