IHOP 2008 Annual Report Download - page 34

(iii) opening new restaurants that cannibalize the sales of existing restaurants; (iv) failure of
national or local marketing to be effective; (v) weakening national, regional and local economic
conditions; and (vi) natural disasters or extreme weather conditions.
• negative trends in operating expenses such as: (i) increases in food costs including rising
commodity costs; (ii) increases in labor costs including increases in minimum wage and other
employment laws, immigration reform, and increases due to tight labor market conditions, health
care and workers compensation costs; and (iii) increases in other operating costs including
advertising, utilities, lease-related expenses and credit card processing fees;
• the inability to open new restaurants that achieve and sustain acceptable sales volumes;
• the inability to increase menu pricing to offset increased operating expenses;
• failure to effectively manage further penetration into mature markets;
• negative trends in the availability of credit and expenses such as interest rates and the cost of
construction materials that will affect our ability or our franchisees’ ability to maintain and
refurbish existing stores;
• the inability to manage a large number of restaurants due to unanticipated changes in executive
management, and availability of qualified restaurant management, staff and other personnel;
• the inability to operate effectively in new and/or highly competitive geographic regions or local
markets in which we or our franchisees have limited operating experience; and
• the inability to manage a large number of restaurants in diverse geographic areas with a
standardized operational and marketing approach.
Shortages or interruptions in the supply or delivery of food supplies or price increases could have a
material adverse affect on our system-wide sales, revenues or profits. Our franchised and company-
operated restaurants are dependent on frequent deliveries of fresh produce, groceries and other food
and beverage products. This subjects us to the risk of shortages or interruptions in food and beverage
supplies which may result from a variety of causes including, but not limited to, shortages due to
adverse weather, labor unrest, political unrest, terrorism, outbreaks of food-borne illness or other
unforeseen circumstances. Such shortages could adversely affect our revenue and profits. Similarly,
unanticipated increases in the cost of food and beverage products could adversely affect our revenue
and profits. The inability to secure adequate and reliable supplies or distribution of food and beverage
products could limit our ability to make changes to our core menus or offer promotional ‘‘limited time
only’’ menu items, which may limit our ability to implement our business strategies. Our restaurants
bear risks associated with the timeliness of deliveries by suppliers and distributors as well as the
solvency, reputation, labor relationships, freight rates, prices of raw materials and health and safety
standards of each supplier and distributor. Other significant risks associated with our suppliers and
distributors include improper handling of food and beverage products and/or the adulteration or
contamination of such food and beverage products. Disruptions in our relationships with suppliers and
distributors may reduce the profits generated by company-operated restaurants or the payments we
receive from franchisees.
Changing health or dietary preferences may cause consumers to avoid Applebee’s and IHOP’s products in
favor of alternative foods. The food service industry as a whole rests on consumer preferences and
demographic trends at the local, regional, national and international levels, and the impact on
consumer eating habits of new information regarding diet, nutrition and health. Our franchise
development and system-wide sales depend on the sustained demand for our products, which may be
affected by factors we do not control. Changes in nutritional guidelines issued by the United States
Department of Agriculture, issuance of similar guidelines or statistical information by federal, state or
local municipalities, or academic studies, among other things, may impact consumer choice and cause
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