Sprouts Farmers Market 2015 Annual Report Download - page 32

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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.
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 FSMA, passed in January 2011, portions
of which go into effect in 2016, grant the FDA greater authority over the safety of the national food supply,
as well as increased enforcement by government agencies, and could result in additional compliance
costs and civil remedies. Such regulations mandate 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.
With respect to both food and dietary supplements, 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. 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 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
will reasonably be expected to be safe at least 75 days before introducing a new dietary ingredient into
interstate commerce. This or similar informational requirements could materially adversely affect the
availability of dietary supplement products.
The FDA has broad authority to enforce the provisions of the FDCA applicable to the safety,
labeling, manufacturing and promotion of foods and dietary supplements, including powers to issue a
public warning letter to a company, publicize information about illegal products, institute an administrative
detention of food, request or order a recall of illegal products from the market, and request the