Sprouts Farmers Market 2013 Annual Report Download - page 32

Table of Contents
As is common in our industry, we rely on our suppliers and contract manufacturers to ensure that the products they
manufacture and sell to us comply with all applicable regulatory and legislative requirements. In general, we seek certifications of
compliance, representations and warranties, indemnification and/or insurance from our suppliers and contract manufacturers.
However, even with adequate insurance and indemnification, any claims of non-compliance could significantly damage our
reputation and consumer confidence in our products. In order to comply with applicable statutes and regulations, our suppliers and
contract manufacturers have from time to time reformulated, eliminated or relabeled certain of their products and we have revised
certain provisions of our sales and marketing program.
We cannot predict the nature of future laws, regulations, interpretations or applications, or determine what effect either
additional government regulations or administrative orders, when and if promulgated, or disparate federal, state and local regulatory
schemes would have on our business in the future. They could, however, increase our costs or require the reformulation of certain
products to meet new standards, the recall or discontinuance of certain products not able to be reformulated, additional
recordkeeping, expanded documentation of the properties of certain products, expanded or different labeling and/or scientific
substantiation. Any or all of such requirements could have a material adverse effect on our business, financial condition and results
of operations.
Our nutrition-oriented educational activities may be impacted by government regulation or our inability to secure
adequate liability insurance.
We provide nutrition-oriented education to our customers, and these activities may be subject to state and federal regulation,
and oversight by professional organizations. In the past, the FDA has expressed concerns regarding summarized health and
nutrition-related information that (i) does not, in the FDA’s view, accurately present such information, (ii) diverts a consumer’s
attention and focus from FDA-required nutrition labeling and information or (iii) impermissibly promotes drug-type disease-related
benefits. If our team members or third parties we engage to provide this information do not act in accordance with regulatory
requirements, we may become subject to penalties that could have a material adverse effect on our business. We believe we are
currently in compliance with relevant regulatory requirements, and we maintain professional liability insurance in order to mitigate
risks associated with this nutrition-oriented education. However, we cannot predict the nature of future government regulation and
oversight, including the potential impact of any such regulation on this activity. Furthermore, the availability of professional liability
insurance or the scope of such coverage may change, or our insurance coverage may prove inadequate, which may adversely
impact the ability of our customer educators to provide some information to our customers. The occurrence of any such
developments could negatively impact the perception of our brand, our sales and our ability to attract new customers.
Disruptions to, or security breaches involving, our information technology systems could harm our ability to run our
business.
We rely extensively on information technology systems for point of sale processing in our stores, supply chain, financial
reporting, human resources and various other processes and transactions. Our information technology systems are subject to
damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches,
including breaches of our transaction processing or other systems that could result in the compromise of confidential customer
data, catastrophic events, and usage errors by our team members. In January 2013, we discovered sophisticated malware installed
on certain credit card “pin pads” in a limited number of our stores designed to illegally access our customers’ credit card
information. We discovered the malware shortly after it was planted and promptly shut down its access to our systems, but it is
possible that our customers’ credit card information was compromised. In connection with the January 2013 breach, in addition to
replacing the affected card terminals for a total cost of approximately $170,000, we
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