IHOP 2008 Annual Report Download - page 23

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Marketing and Advertising
Applebee’s has historically concentrated its advertising and marketing efforts primarily on
food-specific promotions, as well as on Weight Watchers, Carside To Goand other Applebee’s
branded messaging. Our advertising and marketing includes national, regional and local expenditures,
utilizing primarily television, radio, direct mail and print media, as well as alternative channels such as
the Internet, product placements and the use of third-party retailers to market our gift cards. For the
year ended December 31, 2008, approximately 4% of Applebee’s company restaurant sales were
allocated for marketing purposes. This amount includes contributions to the national advertising fund,
which develops and funds the national promotions and the development of television and radio
commercials and print advertising materials. We focus the remainder of our company-operated
restaurant marketing expenditures on local marketing in areas with company-operated restaurants.
We currently require domestic franchisees of Applebee’s restaurants to contribute 2.75% of their
gross sales to the national advertising fund and to spend at least 1% of their gross sales on local
marketing and promotional activities. Under the current Applebee’s franchise agreements, we have the
ability to increase the amount of the required combined contribution to the national advertising fund
and the amount required to be spent on local marketing and promotional activities to a maximum of
5% of gross sales.
Purchasing
Maintaining high food quality, system-wide consistency and availability is the central focus of our
supply chain program. We establish quality standards for products used in the restaurants, and we
maintain a list of approved suppliers and distributors from which we and our franchisees must select.
We periodically review the quality of the products served in our domestic restaurants in an effort to
ensure compliance with these standards. We have negotiated purchasing agreements with most of our
approved suppliers which result in volume discounts for us and our franchisees. At December 31, 2008,
there were outstanding purchase commitments to purchase food items of approximately $119.1 million.
In February 2009 we announced the formation of Centralized Supply Chain Services, LLC (CSCS), an
independent purchasing co-operative to manage procurement activities for the Applebee’s and IHOP
restaurants choosing to join the co-operative. Due to cultural and regulatory differences, we may have
different requirements for restaurants opened outside of the United States.
IHOP
We develop, franchise and operate restaurants in the family dining category of the restaurant
industry under the names ‘‘IHOP’’ and ‘‘International House of Pancakes.’’ As of December 31, 2008,
there were a total of 1,396 IHOP restaurants of which 1,225 were subject to franchise agreements, 160
were subject to area license agreements and 11 were company-operated restaurants. Franchisees and
area licensees are independent third parties who are licensed by us to operate their restaurants using
our trademarks, operating systems and methods and offer a broad range of entrees, appetizers, desserts
and non-alcoholic beverages specified by IHOP, including our award-winning pancakes. We own and
operate ten IHOP restaurants in the Cincinnati market primarily for testing new menu items and
operational or procedural systems and for other research and development purposes. We also operate,
from time to time on a temporary basis, IHOP restaurants that we reacquire for a variety of reasons
from IHOP franchisees. IHOP restaurants are located in 49 states in the United States, the District of
Columbia, and internationally in Canada and Mexico.
IHOP restaurants feature full table service and moderately priced, high-quality food and beverage
offerings in an attractive and comfortable atmosphere. Although the restaurants are best known for
their award-winning pancakes, omelets and other breakfast specialties, IHOP restaurants offer a broad
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