Sprouts Farmers Market 2013 Annual Report Download - page 28

Table of Contents
quality or safety of any food items sold by us, regardless of the cause, could have a substantial and adverse effect on our sales and
operating results.
Products we sell could cause unexpected side effects, illness, injury or death that could result in their discontinuance or
expose us to lawsuits, either of which could result in unexpected costs and damage to our reputation.
There is increasing governmental scrutiny of and public awareness regarding food safety. Unexpected side effects, illness,
injury, or death caused by products we sell could result in the discontinuance of sales of these products or prevent us from
achieving market acceptance of the affected products. Such side effects, illnesses, injuries and death could also expose us to
product liability or negligence lawsuits. Any claims brought against us may exceed our existing or future insurance policy coverage
or limits. Any judgment against us that is in excess of our policy limits would have to be paid from our cash reserves, which would
reduce our capital resources. Further, we may not have sufficient capital resources to pay a judgment, in which case our creditors
could levy against our assets. The real or perceived sale of contaminated or harmful products would cause negative publicity
regarding our company, brand, or products, which could in turn harm our reputation and net sales, and could have a material
adverse effect on our business, results of operations or financial condition.
If we fail to maintain our reputation and the value of our brand, our sales may decline.
We believe our continued success depends on our ability to maintain and grow the value of the Sprouts brand. Maintaining,
promoting and positioning our brand and reputation will depend largely on the success of our marketing and merchandising efforts
and our ability to provide a consistent, high-quality customer experience. Brand value is based in large part on perceptions of
subjective qualities, and even isolated incidents can erode trust and confidence, particularly if they result in adverse publicity,
governmental investigations or litigation. Our brand could be adversely affected if we fail to achieve these objectives, or if our public
image or reputation were to be tarnished by negative publicity. Our reputation could also suffer from real or perceived issues
involving the labeling or marketing of products we sell as “natural.”
Although the FDA and the USDA have each issued statements regarding the appropriate use of the word “natural,”
there is no
single, U.S. government-regulated definition of the term “natural” for use in the food industry. The resulting uncertainty has led to
consumer confusion, distrust and legal challenges. Plaintiffs have commenced legal actions against a number of food companies
that market “natural” products, asserting false, misleading and deceptive advertising and labeling claims, including claims related to
genetically modified ingredients. In limited circumstances, the FDA has taken regulatory action against products labeled “natural”
that nonetheless contain synthetic ingredients or components. Should we become subject to similar claims, consumers may avoid
purchasing products from us or seek alternatives, even if the basis for the claim is unfounded. Adverse publicity about these
matters may discourage consumers from buying our products. The cost of defending against any such claims could be significant.
Any loss of confidence on the part of consumers in the truthfulness of our labeling or ingredient claims would be difficult and costly
to overcome and may significantly reduce our brand value. Any of these events could adversely affect our reputation and brand and
decrease our sales, which would have a material adverse effect on our business, financial condition and results of operations.
The current geographic concentration of our stores creates an exposure to local or regional downturns or catastrophic
occurrences.
As of December 29, 2013, we operated 73 stores in California, making California our largest market representing 44% of our
total stores and 46% of our net sales in the fiscal year ended
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