Dunkin' Donuts 2012 Annual Report Download - page 24

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To the extent our franchisees are unable to open new stores as we anticipate, our revenue growth would come primarily from
growth in comparable store sales. Our failure to add a significant number of new restaurants or grow comparable store sales
would adversely affect our ability to increase our revenues and operating income and could materially and adversely harm our
business and operating results.
Increases in commodity prices may negatively affect payments from our franchisees and licensees.
Coffee and other commodity prices are subject to substantial price fluctuations, stemming from variations in weather patterns,
shifting political or economic conditions in coffee-producing countries and delays in the supply chain. If commodity prices rise,
franchisees may experience reduced sales, due to decreased consumer demand at retail prices that have been raised to offset
increased commodity prices, which may reduce franchisee profitability. Any such decline in franchisee sales will reduce our
royalty income, which in turn may materially and adversely affect our business and operating results.
Our joint ventures in Japan and South Korea (the “International JVs”), as well as our licensees in Russia and India,
manufacture ice cream products independently. Each of the International JVs owns a manufacturing facility in its country of
operation. The revenues derived from the International JVs differ fundamentally from those of other types of franchise
arrangements in the system because the income that we receive from the International JVs is based in part on the profitability,
rather than the gross sales, of the restaurants operated by the International JVs. Accordingly, in the event that the International
JVs experience staple ingredient price increases that adversely affect the profitability of the restaurants operated by the
International JVs, that decrease in profitability would reduce distributions by the International JVs to us, which in turn could
materially and adversely impact our business and operating results.
Shortages of coffee could adversely affect our revenues.
If coffee consumption continues to increase worldwide or there is a disruption in the supply of coffee due to natural disasters,
political unrest or other calamities, the global coffee supply may fail to meet demand. If coffee demand is not met, franchisees
may experience reduced sales which, in turn, would reduce our royalty income. Such a reduction in our royalty income may
materially and adversely affect our business and operating results.
We and our franchisees rely on computer systems to process transactions and manage our business, and a disruption or a
failure of such systems or technology could harm our ability to effectively manage our business.
Network and information technology systems are integral to our business. We utilize various computer systems, including our
FAST System and our EFTPay System, which are customized, web-based systems. The FAST System is the system by which
our U.S. and Canadian franchisees report their weekly sales and pay their corresponding royalty fees and required advertising
fund contributions. When sales are reported by a U.S. or Canadian franchisee, a withdrawal for the authorized amount is
initiated from the franchisee's bank after 12 days (from the week ending or month ending date). The FAST System is critical to
our ability to accurately track sales and compute royalties due from our U.S. and Canadian franchisees. The EFTPay System is
used by our U.S. and Canadian franchisees to make payments against open, non-fee invoices (i.e., all invoices except royalty
and advertising funds). When a franchisee selects an invoice and submits the payment, on the following day a withdrawal for
the selected amount is initiated from the franchisee's bank. Despite the implementation of security measures, our systems,
including the FAST System and the EFTPay System, are subject to damage and/or interruption as a result of power outages,
computer and network failures, computer viruses and other disruptive software, security breaches, catastrophic events and
improper usage by employees. Such events could result in a material disruption in operations, a need for a costly repair,
upgrade or replacement of systems, or a decrease in, or in the collection of, royalties paid to us by our franchisees. To the extent
that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate
disclosure of confidential or proprietary information, we could incur liability which could materially affect our results of
operations.
Interruptions in the supply of product to franchisees and licensees could adversely affect our revenues.
In order to maintain quality-control standards and consistency among restaurants, we require through our franchise agreements
that our franchisees obtain food and other supplies from preferred suppliers approved in advance. In this regard, we and our
franchisees depend on a group of suppliers for ingredients, foodstuffs, beverages and disposable serving instruments including,
but not limited to, Rich Products Corp., Dean Foods Co., The Coca-Cola Company and Silver Pail Dairy, Ltd. as well as four
primary coffee roasters and three primary donut mix suppliers. In 2012, we and our franchisees purchased products from over
450 approved domestic suppliers, with approximately 12 of such suppliers providing half, based on dollar volume, of all
products purchased domestically. We look to approve multiple suppliers for most products, and require any single sourced
supplier, such as The Coca-Cola Company, to have audited contingency plans in place to ensure continuity of supply. In
addition we believe that, if necessary, we could obtain readily available alternative sources of supply for each product that we