Burger King 2013 Annual Report Download - page 12

Table of Contents
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General. We establish the standards and specifications for most of the goods used in the development and operation of our restaurants and for the direct
and indirect sources of supply of most of those items. These requirements help us assure the quality and consistency of the products sold at our restaurants
and protect and enhance the image of the Burger King system and the Burger King brand.
In general, we approve the manufacturers of the food, packaging and equipment products and other products used in Burger King restaurants, as well
as the distributors of these products to Burger King restaurants. Franchisees are generally required to purchase these products from approved suppliers and
distributors. We consider a range of criteria in evaluating existing and potential suppliers and distributors, including food safety, product and service
consistency, delivery timeliness and financial condition.
U.S. and Canada. Restaurant Services, Inc., or RSI, is a not-for-profit, independent purchasing cooperative formed in 1992 to leverage the purchasing
power of the Burger King system in the United States. As the purchasing agent for the Burger King system in the United States, RSI negotiates the purchase
terms for most equipment, food, beverages (other than branded soft drinks) and other products such as promotional toys and paper products used in our
restaurants. RSI is also authorized to purchase and manage distribution services on behalf of the Company restaurants and franchisees who appoint RSI as
their agent for these purposes. As of December 31, 2013, RSI was appointed the distribution manager for approximately 91% of the restaurants in the United
States. A subsidiary of RSI acts as purchasing agent for food and paper products for franchise restaurants in Canada. As of December 31, 2013, four
distributors serviced approximately 86% of U.S. system restaurants and the loss of any one of these distributors would likely adversely affect our business.
In Fiscal 2000, we entered into long-term exclusive contracts with The Coca-Cola Company and Dr Pepper/Snapple, Inc. to supply Company
restaurants and franchise restaurants with their products and which obligate Burger King restaurants in the United States to purchase a specified number of
gallons of soft drink syrup. These volume commitments are not subject to any time limit. As of December 31, 2013, we estimate that it will take approximately
16 years to complete the Coca-Cola and Dr Pepper/Snapple, Inc. purchase commitments. If these agreements were terminated, we would be obligated to pay an
aggregate amount equal to approximately $500 million as of December 31, 2013 based on an amount per gallon for each gallon of soft drink syrup remaining
in the purchase commitments, interest and certain other costs.
International. There is currently no designated purchasing agent that represents franchisees in our international regions. We approve suppliers and
distributors and use similar standards and criteria to evaluate international suppliers that we use for U.S. suppliers. Franchisees may propose additional
suppliers, subject to our approval and established business criteria.
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We own valuable intellectual property including trademarks, service marks, patents, copyrights, trade secrets and other proprietary information. As of
December 31, 2013, we owned approximately 4,006 trademark and service mark registrations and applications and approximately 1,078 domain name
registrations around the world, some of which are of material importance to our business. Depending on the jurisdiction, trademarks and service marks
generally are valid as long as they are used and/or registered. We also have established the standards and specifications for most of the goods and services used
in the development, improvement and operation of Burger King restaurants. These proprietary standards, specifications and restaurant operating procedures
are trade secrets owned by us. Additionally, we own certain patents of varying duration relating to equipment used in our restaurants.
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We operate in the FFHR category of the QSR segment of the broader restaurant industry. We compete in the United States and internationally with many
well-established food service companies on the basis of product choice, quality, affordability, service and location. Our competitors include a variety of
independent local operators, in addition to well-capitalized regional, national and international restaurant chains and franchises. In the FFHR industry our
principal competitors are McDonald’s Corporation, or McDonald’s, and The Wendy’s Company, or Wendy’s, as well as regional hamburger restaurant
chains, such as Carl’s Jr., Jack in the Box and Sonic. We also compete for consumer dining dollars with national, regional and local (i) quick service
restaurants that offer alternative menus, (ii) casual and “fast casual” restaurant chains and (iii) convenience stores and grocery stores. Furthermore, the
restaurant industry has few barriers to entry, and therefore new competitors may emerge at any time.
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Source: Burger King Worldwide, Inc., 10-K, February 21, 2014 Powered by Morningstar® Document Research℠
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