IHOP 2013 Annual Report Download - page 28

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The success of further international expansion will depend on, among other things, local acceptance of the Applebee's and
IHOP concepts and menu offerings and our ability to attract qualified franchisees and operating personnel. Our franchisees
must comply with the regulatory requirements of the local jurisdictions.
Domestic and International Franchise Restaurant Development
Each franchisee is responsible for selecting the site for each new restaurant. We may assist franchisees in selecting
appropriate sites, and any selection made by a franchisee is subject to our approval. We also conduct a physical inspection,
review any proposed lease or purchase agreement and may make available to franchisees demographic and other studies. We
make the design specifications for a typical restaurant available to franchisees, and we retain the right to prohibit or modify the
use of any set of plans.
As of December 31, 2013, we had 84 development agreements with 30 Applebee’s franchise groups in place covering the
entire United States (except Hawaii and our company-operated market) and 11 development agreements with 11 franchise
groups calling for restaurant development in foreign countries. Applebee's development agreements generally provide for a
series of two-year development commitments after the initial development period. The Applebee’s development agreements in
place call for the opening of a combined total of 105 domestic restaurants and 16 international restaurants in 2014 and 2015.
As of December 31, 2013, we had signed commitments and options from IHOP franchisees to build 263 IHOP restaurants
over the next 16 years, comprised of four restaurants under single restaurant or non-traditional development agreements, 146
restaurants under domestic multi-restaurant development agreements and 81 restaurants under international development
agreements. The signed agreements include options to build an additional 32 restaurants over the next 13 years.
During 2014, we expect our franchisees to open a total of between 40 to 50 new IHOP restaurants and a total of between
40 to 50 new Applebee’s restaurants, primarily in the domestic market.
The actual number of openings may differ from both our expectations and development commitments. Historically, the
actual number of restaurants developed in a particular year has been less than the total number committed to be developed due
to various factors, including economic conditions and franchisee noncompliance with development agreements. The timing of
new restaurant openings also may be affected by various factors including weather-related and other construction delays,
difficulties in obtaining timely regulatory approvals and the impact of currency fluctuations on our international franchisees.
Franchise Operations
We continuously monitor franchise restaurant operations. Company and third-party representatives make both scheduled
and unannounced inspections of franchised restaurants to ensure that only approved products are in use and that our prescribed
operations practices and procedures are being followed. We have the right to terminate a franchise agreement if a franchisee
does not operate and maintain a restaurant in accordance with our requirements. Due to cultural and regulatory differences, we
may have different requirements for restaurants opened outside of the United States. We also monitor the financial health of our
franchisees through business and financial reviews.
Composition of Franchise Systems
As of December 31, 2013, there were 36 Applebee’s franchisees that owned a total of 1,838 domestic Applebee's franchise
restaurants. The number of domestic restaurants held by an individual franchisee ranged from one restaurant to 448 restaurants.
As of December 31, 2013, there were 25 franchisees that owned a total of 150 international Applebee's franchise restaurants.
The number of international restaurants held by an individual franchisee ranged from one restaurant to 21 restaurants. Our five
largest Applebee’s franchisees own 47% of the total 1,988 Applebee's franchise restaurants.
As of December 31, 2013, there were 333 franchisees that owned a total of 1,551 domestic IHOP franchise restaurants,
including 153 franchisees that each own one franchise restaurant. The largest individual IHOP franchisee owned 154 domestic
restaurants. As of December 31, 2013, there were 14 franchisees and one area licensee that owned a total of 56 international
IHOP franchise restaurants. The number of international restaurants held by an individual franchisee ranged from one
restaurant to 14 restaurants. Our five largest IHOP franchisees own 24% of the total 1,607 IHOP franchise restaurants.
Company-Operated Restaurants
As of December 31, 2013, we operated 23 Applebee's restaurants located in the Kansas City, Missouri market area and 10
IHOP restaurants located in the Cincinnati, Ohio market area. We operate these restaurants primarily to test new remodel
programs, operating procedures, products, technology, cooking platforms and service models and accordingly, we do not
anticipate these restaurants will generate a significant amount of profit or loss in any given period. Additionally, from time to
time, we have reacquired IHOP restaurants from IHOP franchisees for a variety of reasons. In most cases we have been able to