Has Healthy Eating Hit a Tipping Point?

Last week Sprouts Market ($SFM), a smaller competitor of Whole Foods ($WFM), made a comment that stood out to me on its conference call.  The company said that middle income consumers are adopting healthier eating habits faster than any other segment:

Studies today show that the most rapidly growing segment of Americans adopting healthier eating habits is primarily middle income consumers. For years, price and availability have long been viewed key barriers to attracting this middle income shopper”

If this is accurate, it may be an indication that the healthy eating trend has “crossed the chasm” to mass market adoption.  The healthy eating trend has been brewing for a long time, but we may be at a point where awareness, availability and price have converged to a tipping point.

The “tipping point” theory could be an explanation for why we are finally starting to see negative comps at a company like McDonalds.  Even though the healthy eating movement has grown rapidly for years, it may have been too niche up to this point to have a material impact on a behemoth like $MCD’s numbers.  MCD grew US guest count all throughout the recession.  In 2013 and so far this year though, guest count has been declining.  If this is indeed an inflection point, it could be the start of more to come.

McDonalds Guest Count Growth

Sprouts Market 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

focus on produce

“let me reiterate what we see clearly distinguishes Sprouts from our competitors. As many of you know, Sprouts attracts the everyday grocery shopper by offering fresh high-quality produce at the best prices in town.

Why produce? It’s because produces a healthy product the everyday grocery shopper understands and buys every week. With approximately 25% of our revenue coming from the produce department we continue to benefit the consumers growing interest in improving their diet by making healthier food choices.”

Middle income consumers fastest growing segment of Americans adopting healthy eating

“Studies today show that the most rapidly growing segment of Americans adopting healthier eating habits is primarily middle income consumers. For years, price and availability have long been viewed key barriers to attracting this middle income shopper”

Health movement is reshaping the food industry

“we believe the growing health movement driven in part by aging baby boomers, millennials, and young families focused on what they’re feeding their children is reshaping the food industry as we know it.”

Higher inflation in some commodities

” During the second quarter, as expected, we experienced higher inflation in certain commodities. ”

Strong comps

“. We continue to expect the 2year comp sales stack to be in the 19% to 20% range, which still remains amongst the best in retail and well outpaces the grocery sector. Specific to the third quarter of 2014, we are forecasting comp sales growth of 8.5% to 9.5%”

Targeting the middle income consumer

“the fastest adoption in healthy eating is coming from that middle-income consumer, who is target customer for Sprouts.

Connecting with that customer goes into everything we do from where we place our stores, to how we market our products. And I think our customers are seeing the value of shopping at Sprouts and really appreciate the effort we put into making sure healthy eating is affordable for them. ”

Haven’t seen much pricing shift in natural foods

” on the price side, we’ve spent a lot of time and a lot of resources doing a lot of competitive price checks, making sure we’re up to speed on what all the competition is doing. And we really haven’t seen a very material shift on the competitive pricing side of natural foods.”

Stay focused on what you can do to be even better

“We think we are good today, but continue to get better by listening to our customers, and we’re spending a lot of time and effort right now in going through the process of saying: what are the next things that we want to achieve over the next several years to be even better? With a focus on two things, health and value.”