Sprouts Farmers Market 2014 Annual Report Download - page 27

and corporate governance rules and regulations. Our management team has limited experience in
managing a public company and, historically, has not had the resources typically found in a public
company. Our internal infrastructure may not be adequate to support our increased reporting obligations,
and we may be unable to hire, train or retain necessary staff and may initially be reliant on engaging
outside consultants or professionals to overcome our lack of experience. Our business could be adversely
affected if our internal infrastructure is inadequate, we are unable to engage outside consultants, or are
otherwise unable to fulfill our public company obligations.
Market and Other External Risks
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. Our success depends on our ability to offer products that appeal to our customers’ preferences, and
our failure to offer such products could lead to a decrease in our sales. To the extent that our competitors
lower prices, our ability to maintain profit margins and sales levels may be negatively impacted. In addition,
some competitors are aggressively expanding their number of stores or their product offerings or
increasing the space allocated to perishable and specialty foods, including natural and organic foods.
Some of these competitors may have been in business longer or may have greater financial or marketing
resources than we do and may be able to devote greater resources to sourcing, promoting and selling their
products. As competition in certain areas intensifies or competitors open stores within close proximity to
our stores, our results of operations may be negatively impacted through a loss of sales, decrease in
market share, reduction in margin from competitive price changes or greater operating costs.
We rely heavily on sales of fresh produce and quality natural and organic products, and product
supply disruptions may have an adverse effect on our profitability and operating results.
We have a significant focus on perishable products, including fresh produce and natural and organic
products. Sales of produce accounted for approximately 26% of our net sales in both fiscal 2014 and 2013.
Although we have not experienced difficulty to date in maintaining the supply of our produce and fresh,
natural and organic products that meet our quality standards, there is no assurance that these products will
be available to meet our needs in the future. The availability of such products at competitive prices
depends on many factors beyond our control, including the number and size of farms that grow natural or
organic crops or raise livestock that meet our quality, welfare and production standards and the ability of
our vendors to maintain organic, non-genetically modified or other applicable third-party certifications for
such products. Produce is also vulnerable to adverse weather conditions and natural disasters, such as
floods, droughts, storms, frosts, earthquakes, hurricanes and pestilences. Adverse weather conditions and
natural disasters can lower crop yields and reduce crop size and quality, which in turn could reduce the
available supply of, or increase the price of, fresh produce, which may adversely impact sales of our fresh
produce and our other products that rely on produce as a key ingredient.
In addition, we and our suppliers compete with other food retailers in the procurement of natural and
organic products, which are often less available than conventional products. If our competitors significantly
increase their natural and organic product offerings due to increases in consumer demand or otherwise, we
and our suppliers may not be able to obtain a sufficient supply of such products on favorable terms, or at
all, our sales may decrease, which could have a material adverse effect on our business, financial
condition and results of operations. We could also suffer significant inventory losses in the event of
disruption of our distribution network or extended power outages in our distribution centers. If we are
unable to maintain inventory levels suitable for our business needs, it would materially adversely affect our
financial condition and results of operations.
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