GNC 2011 Annual Report Download - page 16

Table of Contents
The offering and sale of our franchises in the United States are regulated by the Federal Trade Commission (the "FTC") and various state authorities. See
Item 1, "— Government Regulation — Franchise Regulation".
International Franchises
Revenues from our international franchisees accounted for approximately 37% of our total franchise revenues for the year ended December 31, 2010. In
2010, new international franchisees were required to pay an initial fee of approximately $25,000 for a franchise license for each full size store and average
continuing royalty fees of approximately 5% of retail sales, with fees and royalties varying depending on the country and the store type. Our franchise
program has enabled us to expand into international markets with limited capital expenditures. We expanded our international presence from 858 international
franchise locations at the end of 2005 to 1,437 international locations (including distribution centers where retail sales are made) as of December 31, 2010.
We typically generate less revenue from franchises outside the United States due to lower international royalty rates and the franchisees purchasing a smaller
percentage of products from us compared to our domestic franchisees.
Franchisees in international locations enter into development agreements with us for either full-size stores, a store-within-a-store at a host location,
wholesale distribution center operations or internet distribution rights. The development agreement grants the franchisee the right to develop a specific
number of stores in a territory, often the entire country. The international franchisee then enters into a franchise agreement for each location. The full-size
store franchise agreement has an initial ten-year term with two five-year renewal options. At the end of the initial term and renewal periods, the international
franchisee has the option to renew the agreement at 33% of the franchise fee that is then in effect. Franchise agreements for international store-within-a-store
locations have an initial term of five years, with two five-year renewal options. At the end of the initial term and each of the renewal periods, the international
franchisee of a store-within-a-store location has the option to renew the agreement for up to a maximum of 50% of the franchise fee that is then in effect. Our
international franchisees often receive exclusive franchising rights to the entire country franchise, excluding U.S. military bases. Our international franchisees
must meet minimum standards and duties similar to our U.S. franchisees. Our international franchise agreements and international operations may be
regulated by various country, local and international laws. See Item 1, "— Government Regulation — Franchise Regulation".
Manufacturing/Wholesale
Our Manufacturing/Wholesale segment is comprised of our manufacturing operations in South Carolina and our wholesale sales business. This segment
supplies our Retail and Franchise segments as well as various third parties with finished products. Our Manufacturing/Wholesale segment generates revenues
through sales of manufactured products to third parties, and the sale of our proprietary and third-party brand products to Rite Aid, PetSmart and
www.drugstore.com. Our wholesale operations are supported primarily by our Anderson, South Carolina distribution center.
Manufacturing
Our sophisticated manufacturing and warehousing facilities support our Retail and Franchise segments and enable us to control the production and
distribution of our proprietary products, to better control costs, protect product quality, monitor delivery times and maintain appropriate inventory levels. Our
unique combination of in-house development of products, vertically integrated infrastructure and innovation capabilities support our business strategy and
enable the rapid development of proprietary products. We operate two main manufacturing facilities in the United
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