Sprouts Farmers Market 2014 Annual Report Download - page 30

Financial Reporting, Legal and Other Regulatory Risks
We, as well as our vendors, are subject to numerous laws and regulations and our compliance with
these laws and regulations may increase our costs, limit or eliminate our ability to sell certain
products, raise regulatory enforcement risks not present in the past, or otherwise adversely affect
our business, reputation, results of operations and financial condition.
As a retailer of food, vitamins and supplements and a seller of many of our private label products, we
are subject to numerous health and safety laws and regulations. Our suppliers and contract manufacturers
are also subject to such laws and regulations. These laws and regulations apply to many aspects of our
business, including the manufacturing, packaging, labeling, distribution, advertising, sale, quality and safety
of products we sell, as well as the health and safety of our team members and the protection of the
environment. We are subject to regulation by various government agencies, including the FDA, the USDA,
the FTC, the Occupational Safety and Health Administration, the Consumer Product Safety Commission
and the Environmental Protection Agency, as well as various state and local agencies.
We are also subject to the USDA’s Organic Rule, which facilitates interstate commerce and the
marketing of organically produced food, and provides assurance to our customers that such products meet
consistent, uniform standards. Compliance with the USDA’s Organic Rule also places a significant burden
on some of our suppliers, which may cause a disruption in some of our product offerings. In addition, the
USDA’s Food Safety Inspection Service (referred to as “FSIS”) conducts regular, mandatory on-site
inspections of processing and manufacturing facilities. When violations occur, the agency has broad
discretion to withhold FSIS inspection services, shut down processing facilities and take civil or criminal
actions against violators of applicable statutes and regulations.
As a retailer of supplements, our sales of vitamins and supplements are regulated under DSHEA, a
statute which is administered by the FDA as part of its responsibilities under the FDCA. DSHEA expressly
permits vitamins and supplements to bear statements describing how a product affects the structure,
function and/or general well-being of the body. However, no statement may expressly or implicitly
represent that a supplement will diagnose, cure, mitigate, treat or prevent a disease.
New or revised government laws and regulations, such as the FSMA, passed in January 2011, which
grants the FDA greater authority over the safety of the national food supply, as well as increased enforcement
by government agencies, could result in additional compliance costs and civil remedies. Specifically, the FSMA
requires the FDA to issue regulations mandating that risk-based preventive controls be observed by the majority
of food producers. This authority applies to all domestic food facilities and, by way of imported food supplier
verification requirements, to all foreign facilities that supply food products. In addition, the FSMA requires the
FDA to establish science-based minimum standards for the safe production and harvesting of produce, requires
the FDA to identify “high risk” foods and “high risk” facilities and instructs the FDA to set goals for the frequency
of FDA inspections of such high risk facilities as well as non-high risk facilities and foreign facilities from which
food is imported into the United States.
With respect to both food and dietary supplements, the FSMA meaningfully augments the FDA’s ability
to access a producer’s records and a supplier’s records. This increased access could permit the FDA to
identify areas of concern it had not previously considered to be problematic either for us or for our
suppliers. The FSMA is also likely to result in enhanced tracking and tracing of food requirements and, as a
result, added recordkeeping burdens upon our suppliers. In addition, under the FSMA, the FDA has the
authority to inspect certifications and therefore evaluate whether foods and ingredients from our suppliers
are compliant with the FDA’s regulatory requirements. Such inspections may delay the supply of certain
products or result in certain products being unavailable to us for sale in our stores.
DSHEA established that no notification to the FDA is required to market a dietary supplement if it
contains only dietary ingredients that were present in the U.S. food supply prior to DSHEA’s enactment.
However, for a dietary ingredient not present in the food supply prior to DSHEA’s enactment, the
manufacturer is required to provide the FDA with information supporting the conclusion that the ingredient
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