How to deal with Sprouts' 6% EDLC ask

It really seems like retailers and policy makers want to manipulate food prices ergo profit-taking, price-gouging speak

3-min read

We all know what Kamala said. And now Sprouts is asking — no threatening — vendors into giving a 6% Every Day Low Cost (EDLC) discount. Sprouts is NOT planning to pass the discount on to the consumer. Sounds pretty profit-take-y.

Sprouts announced last week that vendors have 10 days to agree to a 6% EDLC, which will start in 2025, to help fund the grocer’s modernization and expansion plans.

At the point in which BigRetail and the government are aligned on controlling prices, what does that mean for innovators in food + ag?

Can you afford to make 6% less? I bet not. Just look at the cost of labor, especially ag labor —

Farmers are suffering because costs are increasing and they have to hold price. So there is no profit-taking in the ag supply chain.

Squeezing manufacturers and brands

If you are a Sprouts vendor — what if you decide not to give up 6%? Sprouts is making no bones about it —

Brands that support this ask will be prioritized over those that do not.

Future new item assortment decisions will be made with this ask in mind.

Current space allotment, shelf position, SKU count, and ACV can be affected.

Scary. Let’s say you go along with the EDLC, because you can make better margins elsewhere and blend it in, but then some time next year government policy says you can’t sell at a higher price elsewhere — can you sustain a margin cut across the board? Many of you would go out of business.

The history lesson is clear: fewer competitors = fewer producers = less innovation = less consumer choice. I don’t mean to be dystopian but food price controls have been tried elsewhere, ending in this:

How price controls could happen

Remember in 2021 when the FTC opened an investigation into grocer anti-competitive practices? The findings released in March said yup, big grocers used an inflationary environment to strangle smaller grocers and make more money. Elizabeth Warren got excited about Lina Khan’s conclusion and issued this letter calling to re-enstate the Robinson-Patman Act (RPA), which focuses on eliminating disparity in prices at retail.

Here is an excellent article poking holes in the FTC’s conclusion, and why the RPA ends up hurting consumers. And here is the CEO of FMI - Food Industry Association making some good points that price-gauging allegations are bogus too.

Additionally, McKinsey finds neither grocers or CPGs have been raking it in.

But what about Sprouts? I ran profitability metrics comparing top grocers to Sprouts.

Sprouts is outperforming. That’s because they have whip-smart CEO Jack Sinclair. I met Jack Sinclair back when he was EVP of grocery at Walmart. We talked then about WMT owning more of the upstream supply chain as part of their vertical strategy to bring even lower prices to consumers. I met Jack because his kids and mine went to high school together (I say this only to brag, as it’s not germane to the story).

Point is, Sprouts has been winning, so we have to suppose they know what they are doing. They must know small vendors can’t make this big of a concession, but betting you can do something.

Spouts did say this ask is negotiable — so here are some negotiation suggestions:

• offer a smaller EDLC

• ask for waived Ad Fees

• renegotiate your List Price

• request an off-shelf display

• if you’re not in all stores, negotiate for full ACV

• ask for off-cycle review & acceptance of a new item

Sprouts also announced plans to rank vendors based on their consistent supply of goods. This approach echoes the Covid-era ‘on time and in full’ (OTIF) delivery policies, which the FTC deemed anti-competitive. Ironically, without those policies in place, we would have experienced even more empty shelves.

All my best,

Jennifer

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