Sprouts Farmers Market 2013 Annual Report Download - page 29

Table of Contents
December 29, 2013. We also have store concentration in Arizona, Colorado and Texas, operating 26, 24 and 29 stores in those
states, respectively, and representing 45% in the aggregate of our net sales in the fiscal year ended December 29, 2013. In
addition, we source a large portion of our produce from California, ranging from approximately 40% to approximately 70%
depending on the time of year. As a result, our business is currently more susceptible to regional conditions than the operations of
more geographically diversified competitors, and we are vulnerable to economic downturns in those regions. Any unforeseen
events or circumstances that negatively affect these areas in which we have stores or from which we obtain products could
materially adversely affect our revenues and profitability. These factors include, among other things, changes in demographics,
population and employee bases, wage increases, changes in economic conditions, severe weather conditions and other
catastrophic occurrences. Such conditions may result in reduced customer traffic and spending in our stores, physical damage to
our stores, loss of inventory, closure of one or more of our stores, inadequate work force in our markets, temporary disruption in the
supply of products, delays in the delivery of goods to our stores and a reduction in the availability of products in our stores. Any of
these factors may disrupt our business and materially adversely affect our financial condition and results of operations.
Disruption of significant supplier relationships could negatively affect our business.
Nature’s Best, Inc. (referred to as “NB”) is our primary supplier of dry grocery and frozen food products, accounting for
approximately 23% and 17% of our total purchases in fiscal 2013 and 2012, respectively. We also have commitments in place with
NB to order certain amounts of our distribution-sourced organic and natural produce from NB, and to maintain certain minimum
average annual store purchase volumes, including for any new stores we open. Our current contractual relationship with NB
continues through April 2018. Due to this concentration of purchases from a single third-party supplier, the cancellation of our
distribution arrangement or the disruption, delay or inability of NB to deliver product to our stores may materially and adversely
affect our operating results while we establish alternative distribution channels. Another 4% of our total purchases for both fiscal
2012 and 2013 were made through our secondary supplier, United Natural Foods Inc. (referred to as “UNFI”). Our current
contractual relationship with UNFI continues through December 2, 2014 (subject to automatic renewal for successive one-year
periods unless either we or UNFI elect not to renew). There is no assurance UNFI or other distributors will be able to fulfill our
needs on favorable terms or at all. In addition, if NB, UNFI or any of our other suppliers fail to comply with food safety or other laws
and regulations, or face allegations of non-compliance, their operations may be disrupted. We cannot assure you that we would be
able to find replacement suppliers on commercially reasonable terms, which would have a material adverse effect on our financial
condition and results of operations.
Any significant interruption in the operations of our distribution centers or supply chain network could disrupt our ability
to deliver our produce and other products in a timely manner.
We self-distribute our produce through our two distribution centers located in Arizona and Texas and a third-party distribution
center in California. Any significant interruption in the operation of our distribution center infrastructure, such as disruptions due to
fire, severe weather or other catastrophic events, power outages, labor disagreements, or shipping problems, could adversely
impact our ability to distribute produce to our stores. Such interruptions could result in lost sales and a loss of customer loyalty to
our brand. While we maintain business interruption and property insurance, if the operation of our distribution centers were
interrupted for any reason causing delays in shipment of produce to our stores, our insurance may not be sufficient to cover losses
we experience, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, unexpected delays in deliveries from vendors that ship directly to our stores or increases in transportation costs
(including through increased fuel costs) could have a material adverse effect on our financial condition and results of operations.
Labor shortages in the transportation industry, long-term disruptions to the national and international transportation
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