IHOP 2012 Annual Report Download - page 30

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Purchasing Cooperative
In February 2009, Centralized Supply Chain Services, LLC ("CSCS" or the "Co-op"), an independent cooperative entity, was
formed to operate as a purchasing cooperative for the operators of Applebee's and IHOP domestic restaurants who have chosen
to join the Co-op. We have 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. We (as a restaurant operator) are a
member of CSCS and have 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 one or more products purchased by operators.
As of December 31, 2012, 100% of Applebee's franchise restaurants and 99% of IHOP franchise restaurants were members of
CSCS.
We believe the larger scale provided by combining the supply chain requirements of both brands provides continuing cost
savings and efficiencies while helping to ensure compliance with Company quality and safety standards. In some instances, IHOP
and Applebee's may be required to guarantee their purchase of any remaining inventory of certain food and other items purchased
by CSCS for the purpose of supplying limited time promotions on behalf of the IHOP Applebee's and IHOP systems as a whole.
Industry Overview and Competition
The Applebee's and IHOP restaurant chains are among the numerous restaurant chains and independent restaurants competing
in the $650 billion restaurant industry in the United States. The restaurant industry is generally categorized into segments by price
point ranges, the types of food and beverages offered and the types of service available to consumers. These segments include,
among others, fast food or quick service restaurants ("QSR"), family dining, casual dining and fine dining. Each of these segments
can be broken down further into the type of food served by the restaurant. For example, the QSR category includes sandwich
chains, hamburger chains and other chains.
Applebee's competes in the casual dining segment and the bar and grill sub-segment against national and multi-state operators
such as Chili's, T.G.I. Friday's and Ruby Tuesday, among others. In addition, there are many independent restaurants across the
country in the casual dining segment. Casual dining restaurants offer full table service and typically have bars or serve liquor,
wine and beer. Applebee's is the largest casual dining brand in the world, in terms of number of restaurants and market share.
IHOP competes in the family dining segment and the breakfast sub-segment against national and multi-state operators such
as Denny's, Cracker Barrel Old Country Store and Bob Evans Restaurants. IHOP also faces a growing level of competition from
fast food chains that serve breakfast. In addition, there are many independent restaurants and diners across the country in the family
dining segment. Family dining restaurants offer full table service, typically do not have bars or serve liquor, and usually offer
breakfast in addition to lunch and dinner items. IHOP is the largest family dining brand in the world in terms of system-wide sales.
The restaurant business is highly competitive and is affected by, among other things, economic conditions, price levels, on-
going changes in eating habits and food preferences, population trends and traffic patterns. The principal bases of competition in
the industry are the type, quality and price of the food products served. Additionally, restaurant location, quality and speed of
service, advertising, name identification and attractiveness of facilities are important.
The market for high quality restaurant sites is also highly competitive. We and our franchisees often compete with other
restaurant chains and retail businesses for suitable sites for the development of new restaurants.
We also compete against other franchising organizations both within and outside the restaurant industry for new franchise
developers.
Trademarks and Service Marks
We and our affiliates have registered certain trademarks and service marks with the United States Patent and Trademark Office
and various international jurisdictions, including “DineEquity®” and “Great Franchisees. Great Brands.®” We own trademarks
and service marks used in the Applebee's system, including “Applebee's®” and "Applebee's Neighborhood Grill & Bar®,” and
variations of each, as well as “Brewtus®,” “Carside To Go®,” “There's No Place Like The Neighborhood®,” “Pick 'N Pair®,” “Main
Street 'Rita®,” “Fiesta Lime Chicken®,” “Fire Grilled Favorites®,” “Triple Chocolate Meltdown®,” “Summer Squeeze®,” “Mucho
Margarita®”, and “See You Tomorrow®.” In addition, through our affiliate, we own trademarks and service marks used in the IHOP
system, including “IHOP®” and “International House of Pancakes®,” and variations of each, as well as “Never Empty Coffee
Pot®,” “Rooty Tooty Fresh 'N Fruity®,” “Rooty Jr.®,” “Harvest Grain 'N Nut®,” “Come Hungry. Leave Happy.®,” “IHOP at Home®,”
“IHOP Cafe®,” and “IHOP Express®,” “Cinn-A-Stack®,” “Create-A-Face®,” “Funny Face®,” “Pancake Revolution®,” “IHOP
Splashers®,” and “IHOP 'N Go®.”