Buffalo Wild Wings 2009 Annual Report Download - page 24

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We could face liability from our franchisees.
A franchisee or government agency may bring legal action against us based on the franchisee/franchisor relationships.
Various state and federal laws govern our relationship with our franchisees and our potential sale of a franchise. If we fail to comply
with these laws, we could be liable for damages to franchisees and fines or other penalties. Expensive litigation with our franchisees or
government agencies may adversely affect both our profits and our important relations with our franchisees.
We may be unable to compete effectively in the restaurant industry.
The restaurant industry is intensely competitive. We believe we compete primarily with regional and local sports bars, casual
dining and quick casual establishments, and to a lesser extent, quick service wing-based take-out concepts. Many of our direct and
indirect competitors are well-established national, regional, or local chains with a greater market presence than us. Further, some
competitors have substantially greater financial, marketing, and other resources than us. In addition, independent owners of local or
regional establishments may enter the wing-based restaurant business without significant barriers to entry and such establishments
may provide price competition for our restaurants. Competition in the casual dining, quick casual and quick service segments of the
restaurant industry is expected to remain intense with respect to price, service, location, concept and the type and quality of food. We
also face intense competition for real estate sites, qualified management personnel, and hourly restaurant staff.
Our success depends substantially on the value of our brands and our reputation for offering guests an unparalleled total
experience.
We believe we have built a strong reputation for the quality and breadth of our menu items as part of the total experience that
guests enjoy in our restaurants. We believe we must protect and grow the value of our brand to continue to be successful in the
future. Any incident that erodes consumer trust in or affinity for our brand could significantly reduce its value. If consumers perceive
or experience a reduction in food quality, service, ambiance or in any way believes we failed to deliver a consistently positive
experience, our brand value could suffer.
Our inability to successfully and sufficiently raise menu prices could result in a decline in profitability.
We utilize menu price increases to help offset cost increases, including increased cost for commodities, minimum wages,
employee benefits, insurance arrangements, construction, utilities, and other key operating costs. If our selection and amount of menu
price increases are not accepted by consumers and reduce guest traffic, or are insufficient to counter increased costs, our financial
results could be harmed.
A reduction in vendor allowances currently received could affect our costs of goods sold.
During fiscal 2009, 2008, and 2007, vendor allowances were recorded as a reduction in inventoriable costs, and cost of sales
was reduced by $6.0 million, $5.2 million, and $4.6 million, respectively. If the amount of vendor allowances is reduced, inventoriable
costs may increase, as may the cost of sales.
Our quarterly operating results may fluctuate due to the timing of special events and other factors, including the recognition
of impairment losses.
Our quarterly operating results depend, in part, on special events, such as the Super Bowl® and other popular sporting events,
and thus are subject to fluctuations based on the dates for such events. Historically, sales in most of our restaurants have been higher
during fall and winter months based on the relative popularity of national, regional and local sporting and other events. Further, our
quarterly operating results may fluctuate significantly because of other factors, including:
• Increases or decreases in same-store sales;
• Fluctuations in food costs, particularly chicken wings;
• The timing of new restaurant openings, which may impact margins due to the related preopening costs and initially
higher restaurant level operating expense ratios;
Source: BUFFALO WILD WINGS INC, 10-K, February 26, 2010 Powered by Morningstar® Document Research℠