IHOP 2009 Annual Report Download - page 28

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.
Supply Chain
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. Due to cultural and regulatory differences, we may have
different requirements for restaurants opened outside of the United States. In February 2009, we
announced the formation of Centralized Supply Chain Services, LLC (‘‘CSCS’’ or the ‘‘Co-op’’), an
independent purchasing cooperative, to manage procurement activities for domestic Applebee’s and
IHOP restaurants choosing to join the cooperative (see ‘‘Purchasing Cooperative’’ below).
Purchasing Cooperative
In February 2009, CSCS, an independent cooperative entity, was formed to operate as a
purchasing cooperative for the operators of Applebee’s and IHOP domestic restaurants. The Company
has appointed CSCS as the sole authorized purchasing organization and purchasing agent for goods,
equipment and distribution services for Applebee’s and IHOP restaurants in the United States. The
Company (as a restaurant operator) is a member of CSCS and has committed to purchase substantially
all goods, equipment and distribution services for company-operated restaurants through the CSCS
supply chain program. CSCS combines the purchasing volume for goods, equipment and distribution
services within and across the Applebee’s and IHOP concepts. Its mission is to achieve for its members
the benefit of continuously available goods, equipment and distribution services in adequate quantities
at the lowest possible sustainable prices. The operations of CSCS are funded by a separately stated
administrative fee added to a product (or set of products) purchased by operators. As of December 31,
2009, 100% of Applebee’s franchise restaurants and over 95% of IHOP franchise restaurants are
members of CSCS.
We believe the larger scale provided by combining the supply chain requirements of both brands
will provide continuing cost savings and efficiencies while helping to ensure compliance with Company
quality and safety standards. We also believe that the Co-op will result in closer alignment of interests
and a stronger relationship with the franchise community.
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, 2009,
there were a total of 1,456 IHOP restaurants of which 1,279 were subject to franchise agreements, 164
were subject to area license agreements and 13 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
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