El Pollo Loco 2015 Annual Report Download - page 29

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Table of Contents
In addition, our success depends in part upon our and our franchisees’ ability to attract, motivate, and retain a sufficient number of well-
qualified
restaurant operators, management personnel, and other employees. Qualified individuals needed to fill these positions can be in short supply in
some geographic areas. In addition, limited service restaurants have traditionally experienced relatively high employee turnover rates. Although
we have not yet experienced any significant problems in recruiting or retaining employees, our and our franchisees’
inability to recruit and retain
qualified individuals could delay planned openings of new restaurants or result in higher employee turnover in existing restaurants, which could
increase our and our franchisees’ labor costs and have a material adverse effect on our business, financial condition, results of operations, and
cash flows. If we or our franchisees are unable to recruit and retain sufficiently qualified individuals, our business and our growth could be
adversely affected. Competition for qualified employees could require us or our franchisees to pay higher wages, which could also result in
higher labor costs.
We are locked into long-term and non-cancelable leases, and may be unable to renew leases at the ends of their terms.
Many of our restaurant leases are non-cancelable and typically have initial terms of up to 20 years and up to three renewal terms of five years
that we may exercise at our option. Even if we close a restaurant, we may remain committed to perform our obligations under the applicable
lease, which could include, among other things, payment of the base rent for the balance of the lease term. In addition, in connection with leases
for restaurants that we will continue to operate, we may, at the end of the lease term and any renewal period for a restaurant, be unable to renew
the lease without substantial additional cost, if at all. As a result, we may close or relocate the restaurant, which could subject us to construction
and other costs and risks. Additionally, the revenue and profit, if any, generated at a relocated restaurant might not equal the revenue and profit
generated at its prior location.
We and our franchisees are subject to extensive government regulations that could result in claims leading to increased costs and restrict our
ability to operate or sell franchises.
We and our franchisees are subject to extensive government regulations at the federal, state, and local levels, including, but not limited to,
regulations relating to preparation and sale of food, zoning and building codes, franchising, land use, and employee, health, sanitation, and safety
matters. We and our franchisees are required to obtain and maintain a wide variety of government licenses, permits, and approvals. Difficulty or
failure in obtaining these in the future could result in delaying or canceling the opening of new restaurants. Local authorities may suspend or
deny renewal of our government licenses if they determine that our operations do not meet their standards for initial grant or renewal. This risk
will increase if there is a major change in the licensing requirements affecting our types of restaurants.
The Patient Protection and Affordable Care Act of 2010 (the “PPACA”)
requires employers such as us to provide adequate and affordable health
insurance for all qualifying employees or to pay a monthly per-employee fee or penalty for non-compliance. We are evaluating the impact that
this new law will have on our operations, and although we cannot predict with certainty the financial impact of the legislation, the law’s
individual mandate may increase the number of employees taking part in our health insurance program, which could impact our results of
operations beginning in 2015.
We are also subject to regulation by the Federal Trade Commission and subject to state laws that govern the offer, sale, renewal, and termination
of franchises and our relationships with our franchisees. Failure to comply with these laws and regulations in any jurisdiction or to obtain
required approvals could result in a ban on or temporary suspension of franchise sales, fines, or the requirement that we make a rescission offer
to our franchisees, any of which could affect our ability to open new restaurants in the future and thus could materially and adversely affect our
business and operating results. Any such failure could also subject us to liability to our franchisees.
We are increasingly subject to environmental regulations, which may increase our cost of doing business and affect the manner in which we
operate. Environmental regulations could increase the level of our taxation and
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