Sprouts Farmers Market 2015 Annual Report Download - page 33

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Department of Justice to initiate a seizure action, an injunction action or a criminal prosecution in the U.S.
courts.
In connection with the marketing and advertisement of products we sell, we could be the target of
claims relating to false or deceptive advertising, including under the auspices of the FTC and the
consumer protection statutes of some states. Furthermore, in recent years, the FDA has been aggressive
in enforcing its regulations with respect to nutrient content claims (e.g., “low fat,” “good source of,” “calorie
free,” etc.), unauthorized “health claims” (claims that characterize the relationship between a food or food
ingredient and a disease or health condition), and other claims that impermissibly suggest therapeutic
benefits for certain foods or food components. These events could interrupt the marketing and sales of
products in our stores, including our private label products, severely damage our brand reputation and
public image, increase the cost of products in our stores, result in product recalls or litigation, and impede
our ability to deliver merchandise in sufficient quantities or quality to our stores, which could result in a
material adverse effect on our business, financial condition and results of operations.
Our reputation could also suffer from real or perceived issues involving the labeling or marketing of
products we sell as “natural.” Although the FDA and the USDA have each issued statements regarding
the appropriate use of the word “natural,” and the FDA has requests for comment now pending on the
issue, there is no single, U.S. government-regulated definition of the term “natural” for use in the food
industry. The resulting uncertainty has led to consumer confusion, distrust and legal challenges. Plaintiffs
have commenced legal actions against a number of food companies and retailers that market “natural”
products, asserting false, misleading and deceptive advertising and labeling claims, including claims
related to genetically modified ingredients. Should we become subject to similar claims, consumers may
avoid purchasing products from us or seek alternatives, even if the basis for the claim is unfounded.
Adverse publicity about these matters may discourage consumers from buying our products. The cost of
defending against any such claims could be significant. Any loss of confidence on the part of consumers
in the truthfulness of our labeling or ingredient claims would be difficult and costly to overcome and may
significantly reduce our brand value. Any of these events could adversely affect our reputation and brand
and decrease our sales, which would have a material adverse effect on our business, financial condition
and results of operations.
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