IHOP 2013 Annual Report Download - page 29

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quickly refranchise these restaurants to new franchisees. Where that is not the case, we typically operate the reacquired
restaurants until they can be refranchised. These temporarily reacquired restaurants may require investments in remodeling and
rehabilitation before they can be refranchised. As a result, our reacquired restaurants may incur operating losses for some
period of time. At December 31, 2013, we operated three such reacquired IHOP restaurants.
Supply Chain
In February 2009, Centralized Supply Chain Services, LLC (“CSCS” or the “Co-op”), an independent cooperative entity,
was formed by us and franchisees of Applebee's and IHOP domestic restaurants who have chosen to join the Co-op. CSCS has
been appointed 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 operator of 36 company restaurants) 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. As of December 31, 2013, 100% of Applebee's franchise restaurants and
99% of IHOP franchise restaurants were members of CSCS.
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. We do not control CSCS but do have
contractual rights associated with supplier certification, quality assurance and protection of our intellectual property. The
operations of CSCS are funded by a separately stated administrative fee added to one or more products purchased by operators.
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 our quality and safety standards.
Industry Overview and Competition
Applebee's and IHOP are among the numerous restaurant chains and independent restaurants competing in the 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 customers. These segments include, among others, fast food or
quick service restaurants (“QSR”), fast-casual dining, family dining, casual dining and fine dining. Casual dining restaurants
offer full table service and typically have bars or serve liquor, wine and beer, while 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.
Applebee's competes in the casual dining segment against national and multi-state restaurant chains such as Chili's, T.G.I.
Friday's, Olive Garden, Red Lobster and Buffalo Wild Wings, among others, as well as fast-casual restaurant chains. In
addition, there are many independent restaurants across the country in the casual dining segment. Amongst our competitors,
Applebee's is the largest casual dining concept in the United States in terms of 2012 system-wide sales(1).
IHOP competes in the family dining segment against national and multi-state restaurant chains such as Denny's, Cracker
Barrel Old Country Store and Bob Evans Restaurants. IHOP also faces competition from QSR restaurant chains and fast-casual
restaurant chains that serve breakfast. In addition, there are many independent restaurants and diners across the country in the
family dining segment. Amongst our competitors, IHOP is the largest family dining concept in the United States in terms of
2012 system-wide sales(1).
The restaurant industry 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 commercial real estate is also very competitive. We and our franchisees compete with other
restaurant chains and retail businesses for suitable sites for the development of new restaurants. We also compete against other
franchisors both within and outside the restaurant industry for new franchise developers. For further information regarding
competition, see Item 1A, Risk Factors.
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(1) Source: Nation's Restaurant News, "Special Report: Top 100," June 24, 2013.