LovelandPolitics
| Loveland's Independent News Source |
| Sprouts Deal Knocked-Out Privately Funded Competitor |
Loveland - May 10, 2015
Hundreds of Loveland residents signed a petition late last year to encourage Loveland's City Council to approve a
$2.2 million subsidy for the developer of a Sprouts Farmers Market in Loveland. According to the petitioners, the
Sprouts subsidy was necessary to bring an organic grocer to Loveland.
Ironically, Loveland City Council's 7-1 vote to approve the unprecedented Sprouts subsidy on November 11, 2014
put an end to an even more mature organic food market development project; just down the street by a direct
competitor of Sprouts.
Last October, Vitamin Cottage's Natural Grocer and their developer completed a final property approval and walk-
through to purchase a parcel in Loveland to develop a new organic grocery store using private funds; one month
before the Sprouts subsidy was approved. With sales over $300 million in the first half of fiscal year 2015,
Vitamin Cottage is hardly a start-up and certainly meets all the same established business criteria Loveland staff
claimed drove their decision to "invest" $2.2 million into Sprouts' to draw this type of established organic grocer
to Loveland.
The proposed Natural Grocer site is home to an asbestos ridden commercial building facing Highway 34 that
formerly served as Ferguson High School. The developer, Equity Ventures Commercial, is a real estate brokerage
and development group whose leasing director, Mark McPheerson, was in regular communication with
Loveland's economic development staffer Mike Scholl regarding his company's plans to demolish the blight and
construct a brand-new organic grocery store in Loveland. Scholl failed to disclose any information regarding the
project during his public presentations to Loveland's City Council when he lobbied for the Sprouts subsidy.
In addition, McPheerson requested some incentives from the city but the public record reveals those requests
were never taken to Loveland's City Council. The project proceeded without city assistance until last November
when it would come to an abrupt and sudden end. According to one partner of the project, McPheerson sent an
email out to the various participants and copied Scholl which stated,
“If the sprouts deal was fully approved, we will not be moving forward with the current location.”
According to another source directly involved in the deal, city staff was fully aware the Sprouts subsidy would
cost the city the privately funded Natural Grocer store but proceeded anyway. The source told LovelandPolitics,
"The fact they could locate on that site and out-positioned Natural Grocers - that is what killed our deal."
According to the same source, Sprouts' fresh produce is hardly different than the average super market while
Natural Grocers appeals to organic food shoppers of a higher level of education. He explained that while each
organic grocery chain is different they all appeal to roughly the same market segment so optimizing a location for
Sprouts through significant city subsidies meant Natural Grocer had to pull out. He continued that more
educated consumers know Natural Grocers is truly an organic grocery so provides them an advantage over
Sprouts in the market but not enough to overcome the city's $2.2 million subsidy to their competitor.
Loveland City Manager Bill Cahill Provided False Information To Council
Members of Loveland's City Council were officially notified of the proposed Natural Grocer by Vitamin Cottage
(VC) as early as last September according to a city email obtained by LovelandPolitics. In a staff report (see full
report to right of this story) provided to the city council dated September 12, 2014 Cahill claimed;
"VC does not view the Sprouts as direct competition, as very little of the Sprouts produce is organic or natural.
VC has a very strict requirement for its products and is more likely to negatively impact the Crunchy Grocer. "
Contrary to Cahill's assertion, the two competitors were profiled in an investor publication back in 2013 , (Link to
original article), as "taking aim at natural and organic foods supermarket giant Whole Foods Market"
LovelandPolitics has learned that Mark McPheerson was unambiguous in his communication with Mike Scholl
that completing a massive subsidy for Sprouts Farmers Market, especially given the close proximity to Natural
Grocer, meant the new Natural Grocer store for Loveland would be cancelled. Nonetheless, the Natural Grocer
project was kept largely secret and thus not identified as an obvious casualty if the city "partnered" with Sprouts.
Sprouts' 2013 Annual Report (SEC Form 10-K) filed some eight months prior to Cahill's misleading staff report,
reveals that not only does Sprouts compete with other organic grocers like the Natural Grocer but also
acknowledges that location is a discriminating factor in their competitive strategies.
"Competition in our industry is intense, and our failure to compete successfully may adversely affect our
revenues and profitability. We operate in the highly competitive retail food industry. Our competitors include
supermarkets, natural food stores, mass or discount retailers, warehouse membership clubs, online retailers,
and specialty stores. These retailers compete with us for products, customers and locations. We compete on a
combination of factors, primarily product selection and quality, customer service, store format, location and
price."
First hand accounts report Natural Grocer developer McPheerson was "livid" when the city went through with a
cash subsidy to a nearby competitor of over $2 million for land acquisition and development costs thus leap-
frogging Natural Grocer's project while investors were still completing due diligence regarding the location in
Loveland. While the City of Loveland has refused to release relevant emails concerning the matter, claiming
business confidentiality, the lack of public disclosure is remarkable given the city's claimed motives for the
Sprouts subsidy. In every category below listed by the City of Loveland as their justification for subsidizing
Sprouts, the parallel Natural Grocer project met or exceeded the same criteria; especially since it proposed using
existing commercial property without having to displace or impact any residents.
1. Bring a "healthy" grocer to Loveland
2. Fix a blighted area of the city
3. Generate future sales taxes
4. Stop "tax leakage" to Ft. Collins
5. Create additional jobs in Loveland
Especially disappointed in the city's treatment of Natural Grocers was Loveland's Youth Gardeners who
contracted use of one acre of land at the store's Loveland location for a cost of only $1 per year. While city staff
promised to explore a similar arrangement for the Youth Gardeners with Sprouts, it appears that has not been
successful given the limits to the smaller site and conflicting abutting land uses on the busy Highway 34 and 287
intersection.
Location, Location, Location
During the stormy second hearing to approve the Sprouts subsidy earlier this year, Councilman Hugh McKean
asked Mike Scholl whether he had plans to include the new grocery store into his developing DDA (Downtown
Development Authority). Scholl said no and claimed there was no connection between the two city efforts.
LovelandPolitics will explore this question and provide compelling evidence that Scholl's testimony was
deliberately false in Part II of this investigative report to be published later this week.
Hundreds of Loveland residents signed a petition late last year to encourage Loveland's City Council to approve a
$2.2 million subsidy for the developer of a Sprouts Farmers Market in Loveland. According to the petitioners, the
Sprouts subsidy was necessary to bring an organic grocer to Loveland.
Ironically, Loveland City Council's 7-1 vote to approve the unprecedented Sprouts subsidy on November 11, 2014
put an end to an even more mature organic food market development project; just down the street by a direct
competitor of Sprouts.
Last October, Vitamin Cottage's Natural Grocer and their developer completed a final property approval and walk-
through to purchase a parcel in Loveland to develop a new organic grocery store using private funds; one month
before the Sprouts subsidy was approved. With sales over $300 million in the first half of fiscal year 2015,
Vitamin Cottage is hardly a start-up and certainly meets all the same established business criteria Loveland staff
claimed drove their decision to "invest" $2.2 million into Sprouts' to draw this type of established organic grocer
to Loveland.
The proposed Natural Grocer site is home to an asbestos ridden commercial building facing Highway 34 that
formerly served as Ferguson High School. The developer, Equity Ventures Commercial, is a real estate brokerage
and development group whose leasing director, Mark McPheerson, was in regular communication with
Loveland's economic development staffer Mike Scholl regarding his company's plans to demolish the blight and
construct a brand-new organic grocery store in Loveland. Scholl failed to disclose any information regarding the
project during his public presentations to Loveland's City Council when he lobbied for the Sprouts subsidy.
In addition, McPheerson requested some incentives from the city but the public record reveals those requests
were never taken to Loveland's City Council. The project proceeded without city assistance until last November
when it would come to an abrupt and sudden end. According to one partner of the project, McPheerson sent an
email out to the various participants and copied Scholl which stated,
“If the sprouts deal was fully approved, we will not be moving forward with the current location.”
According to another source directly involved in the deal, city staff was fully aware the Sprouts subsidy would
cost the city the privately funded Natural Grocer store but proceeded anyway. The source told LovelandPolitics,
"The fact they could locate on that site and out-positioned Natural Grocers - that is what killed our deal."
According to the same source, Sprouts' fresh produce is hardly different than the average super market while
Natural Grocers appeals to organic food shoppers of a higher level of education. He explained that while each
organic grocery chain is different they all appeal to roughly the same market segment so optimizing a location for
Sprouts through significant city subsidies meant Natural Grocer had to pull out. He continued that more
educated consumers know Natural Grocers is truly an organic grocery so provides them an advantage over
Sprouts in the market but not enough to overcome the city's $2.2 million subsidy to their competitor.
Loveland City Manager Bill Cahill Provided False Information To Council
Members of Loveland's City Council were officially notified of the proposed Natural Grocer by Vitamin Cottage
(VC) as early as last September according to a city email obtained by LovelandPolitics. In a staff report (see full
report to right of this story) provided to the city council dated September 12, 2014 Cahill claimed;
"VC does not view the Sprouts as direct competition, as very little of the Sprouts produce is organic or natural.
VC has a very strict requirement for its products and is more likely to negatively impact the Crunchy Grocer. "
Contrary to Cahill's assertion, the two competitors were profiled in an investor publication back in 2013 , (Link to
original article), as "taking aim at natural and organic foods supermarket giant Whole Foods Market"
LovelandPolitics has learned that Mark McPheerson was unambiguous in his communication with Mike Scholl
that completing a massive subsidy for Sprouts Farmers Market, especially given the close proximity to Natural
Grocer, meant the new Natural Grocer store for Loveland would be cancelled. Nonetheless, the Natural Grocer
project was kept largely secret and thus not identified as an obvious casualty if the city "partnered" with Sprouts.
Sprouts' 2013 Annual Report (SEC Form 10-K) filed some eight months prior to Cahill's misleading staff report,
reveals that not only does Sprouts compete with other organic grocers like the Natural Grocer but also
acknowledges that location is a discriminating factor in their competitive strategies.
"Competition in our industry is intense, and our failure to compete successfully may adversely affect our
revenues and profitability. We operate in the highly competitive retail food industry. Our competitors include
supermarkets, natural food stores, mass or discount retailers, warehouse membership clubs, online retailers,
and specialty stores. These retailers compete with us for products, customers and locations. We compete on a
combination of factors, primarily product selection and quality, customer service, store format, location and
price."
First hand accounts report Natural Grocer developer McPheerson was "livid" when the city went through with a
cash subsidy to a nearby competitor of over $2 million for land acquisition and development costs thus leap-
frogging Natural Grocer's project while investors were still completing due diligence regarding the location in
Loveland. While the City of Loveland has refused to release relevant emails concerning the matter, claiming
business confidentiality, the lack of public disclosure is remarkable given the city's claimed motives for the
Sprouts subsidy. In every category below listed by the City of Loveland as their justification for subsidizing
Sprouts, the parallel Natural Grocer project met or exceeded the same criteria; especially since it proposed using
existing commercial property without having to displace or impact any residents.
1. Bring a "healthy" grocer to Loveland
2. Fix a blighted area of the city
3. Generate future sales taxes
4. Stop "tax leakage" to Ft. Collins
5. Create additional jobs in Loveland
Especially disappointed in the city's treatment of Natural Grocers was Loveland's Youth Gardeners who
contracted use of one acre of land at the store's Loveland location for a cost of only $1 per year. While city staff
promised to explore a similar arrangement for the Youth Gardeners with Sprouts, it appears that has not been
successful given the limits to the smaller site and conflicting abutting land uses on the busy Highway 34 and 287
intersection.
Location, Location, Location
During the stormy second hearing to approve the Sprouts subsidy earlier this year, Councilman Hugh McKean
asked Mike Scholl whether he had plans to include the new grocery store into his developing DDA (Downtown
Development Authority). Scholl said no and claimed there was no connection between the two city efforts.
LovelandPolitics will explore this question and provide compelling evidence that Scholl's testimony was
deliberately false in Part II of this investigative report to be published later this week.
| City Council Information Memorandum September 12, 2014 From: William D. Cahill, City Manager Vitamin Cottage Vitamin Cottage (VC) has submitted preliminary materials for development review for a new location on Eisenhower Boulevard at the location of the former Ferguson High School (Gorum and Eisenhower). If they proceed, their plan is to demolish the old Ferguson High School building and build a new store. They will have about an acre at the south portion of the site that is surplus to them. VC’ s preferred developers have the property under contract. The due diligence period doesn’t end until March or April of next year. Vitamin Cottage is looking at a 15,000 square foot store (just over ½ the size of the proposed Sprouts) and anticipate doing $4 million in sales in year one and rising to around $7.5 million by year five. They have gone through a CRT and have identified some issues with access. Also, the developer has indicated that they will seek an incentive from the City. Economic development staff has asked the developer to work through the CRT and design review process before they make a formal request. VC does not view the Sprouts as direct competition, as very little of the Sprouts produce is organic or natural. VC has a very strict requirement for its products and is more likely to negatively impact the Crunchy Grocer. |
| Looking West on Highway 34 in Loveland, the former Ferguson High School campus and the location Natural Grocers' were purchasing is on the left while the city's highly subsidized Sprouts land acquisition can be seen in the upper right (before the stop light for 287). |
| The parking area of the former Ferguson High School campus along with a shed (far left) that would have remained following demolition for the Loveland Youth Gardners along with one acre (far left) for their projects as negotiated with Natural Grocer had Loveland not "partnered" with Sprouts thus causing Natural Grocers to pull their privately funded investment for a new building and store out of Loveland. |