The Sprouts Test

By now it is becoming increasingly ubiquitous to acknowledge that the economy is of the "K-shaped" variety, which basically means the rich get richer while just about everyone flounders, fighting hard to stay on top of bills, expensive, survival. We have profiled, both here and with Members, the destruction of prominent consumer names being masked by the daily melt-up on the major averages, such as CAVA CMG EAT SBUX TXRH, among many others. 

So let us add Sprouts Farmers Market to the list, seen below on the zoomed-out daily chart. 

SFM has just given up the prior year's worth of gains and is still struggling to find buyers of any kind. The stock has actually been one of the hottest stocks in the entire market, especially backing out the AI/Mag7 leaders, since 2022. 

In order to assess whether Sprouts is diverging from the K-shaped thesis we must first ask if SFM is truly a high end grocery store or, in fact, much more geared toward the middle class and aspirational upper middle class. We know Sprouts focuses on organic and natural foods, much more than, say, Trader Joe's. 

At the same, SFM is not seen as expensive as a Whole Foods (bought by AMZN years ago). And certainly not on the level of the Los Angeles-based Erewhon (privately held). 

Thus, with its focus on organic/natural groceries for middle class and aspiration upper middle class consumers, SFM is likely one of the most glaring victims of the K-shaped economy where everyone but the ultra-wealthy gets shafted by entrenched inflation joined at the hip with a bloated housing market and an increasingly tough (especially for white collar workers) jobs market.

And that reinforces the notion that the middle class is getting wiped out, alongside parts of the upper middle class, the longer inflation drags on without any serious action by The Fed and federal government to crush it.