Sprouts Farmers Market 2014 Annual Report Download - page 32

We are also subject to laws and regulations more generally applicable to retailers. Compliance with
such laws and regulations may increase our costs, limit or eliminate our ability to sell certain
products or otherwise adversely affect our business, reputation, results of operations or financial
condition.
We are also subject to laws and regulations more generally applicable to retailers, including labor and
employment, taxation, zoning and land use, environmental protection, workplace safety, public health,
community right-to-know and alcoholic beverage sales. Our stores are subject to unscheduled inspections
on a regular basis, which, if violations are found, could result in the assessment of fines, suspension of one
or more needed licenses and, in the case of repeated “critical” violations, closure of the store until a re-
inspection demonstrates that we have remediated the problem. Further, our new store openings could be
delayed or prevented or our existing stores could be impacted by difficulties or failures in our ability to
obtain or maintain required approvals or licenses. In addition, we are subject to environmental laws
pursuant to which we could be held responsible for all of the costs or liabilities relating to any contamination
at our or our predecessors’ past or present facilities and at third-party waste disposal sites, regardless of
our knowledge of, or responsibility for, such contamination, and such costs may exceed our environmental
liability insurance coverage.
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. 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.
29