El Pollo Loco 2015 Annual Report Download - page 22

Table of Contents
whether we are held to be responsible. In addition, the negative impact of adverse publicity relating to one restaurant may extend far beyond the
restaurant involved to affect some or all of our other restaurants, including our franchised restaurants. The risk of negative publicity is
particularly great with respect to our franchised restaurants, because we are limited in the manner in which we can regulate them, especially on a
real-time basis. A similar risk exists with respect to food service businesses unrelated to us, if customers mistakenly associate those unrelated
businesses with our operations. Employee claims against us or our franchisees based on, among other things, wage and hour violations,
discrimination, harassment, or wrongful termination may also create not only legal and financial liability but negative publicity that could
adversely affect us and divert our financial and management resources that could otherwise be used to benefit the future performance of our
operations. These types of employee claims could also be asserted against us, on a co-employer theory, by employees of our franchisees. A
significant increase in the number of these claims, or an increase in the number of successful claims, could materially and adversely affect our
business, financial condition, results of operations, and cash flows.
Food safety and quality concerns may negatively impact our business and profitability, our internal operational controls and standards may
not always be met, and our employees may not always act professionally, responsibly, and in our and our customers’ best interests. Any
possible instances of food
-borne illness could reduce our restaurant sales.
Incidents or reports of food- or water-borne illness or other food safety issues, food contamination or tampering, employee hygiene or
cleanliness failures, or improper employee conduct at our restaurants could lead to product liability or other claims. Such incidents or reports
could negatively affect our brand and reputation as well as our business, revenues, and profits. Similar incidents or reports occurring at quick-
service restaurants unrelated to us could likewise create negative publicity, which could negatively impact consumer behavior towards us.
We cannot guarantee that our internal controls and training will be fully effective in preventing all food-borne illnesses. Furthermore, our
reliance on third-party food processors makes it difficult to monitor food safety compliance, and may increase the risk that a food-borne illness
would affect multiple locations rather than a single restaurant. Some food-borne illness incidents could be caused by third-party food suppliers
and transporters outside of our control. New illnesses resistant to our current precautions may develop in the future, or diseases with long
incubation periods could arise that could cause claims or allegations on a retroactive basis. One or more instances of food-borne illness in one of
our company-operated or franchised restaurants could negatively affect sales at all of our restaurants if highly publicized. This risk would exist
even if it were later determined that an illness had been wrongly attributed to one of our restaurants. A number of other restaurant chains have
experienced incidents related to food-
borne illnesses that have had material adverse impacts on their operations, and we cannot guarantee that we
could avoid a similar impact upon the occurrence of a similar incident at one of our restaurants. Additionally, even if food-borne illnesses were
not identified at El Pollo Loco restaurants, our restaurant sales could be adversely affected if instances of food-borne illnesses at other restaurant
chains were highly publicized. In addition, our restaurant sales could be adversely affected by publicity regarding other high-profile illnesses
such as avian flu that customers may associate with our food products.
We rely on only one company to distribute substantially all of our products to company-
operated and franchised restaurants, and on a limited
number of companies to supply chicken. Failure to receive timely deliveries of food or other supplies could result in a loss of revenue and
materially and adversely impact our operations.
Our and our franchisees’
ability to maintain consistent quality menu items and prices significantly depends upon our ability to acquire fresh food
products, including the highest-quality chicken and related items, from reliable sources, in accordance with our specifications and on a timely
basis. Shortages or interruptions in the supply of fresh food products, caused by unanticipated demand, problems in production or distribution,
contamination of food products, an outbreak of poultry disease, inclement weather, or other conditions, could materially and adversely affect the
availability, quality, and cost of ingredients, which would adversely affect our business, financial condition, results of operations, and cash
flows. We have contracts with a limited number of suppliers for the chicken and other food
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