IHOP 2014 Annual Report Download - page 26

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IHOP pancake and waffle dry-mixes), franchise fees and software maintenance and support fees. Depending on circumstances,
we may recover a portion of any fees lost due to early termination of a franchise agreement; however, not all franchise
restaurant closures necessarily result in our receipt of such fees.
International Franchising
We continue to pursue international franchising of the Applebee's and the IHOP concepts. To this end, we seek qualified
franchisees that possess the resources needed to open multiple restaurants in each territory and are familiar with the specific
local business environment in which they propose to develop and operate our restaurants. We work closely with our
international franchisees to develop and implement the Applebee's and IHOP systems outside the United States, recognizing
commercial, cultural and dietary diversity. Differences in tastes and cultural norms and standards require that we be flexible
and pragmatic regarding many elements of the Applebee's and IHOP systems, including menu, restaurant design, restaurant
operations, training, marketing, purchasing and financing.
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, 2014, we had 55 development agreements with 19 Applebee’s franchise groups in place covering the
entire United States (except Hawaii and our company-operated market) and 9 development agreements with 8 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 102 domestic restaurants and 19 international restaurants in 2015 and 2016.
As of December 31, 2014, we had signed commitments and options from IHOP franchisees to build 238 IHOP restaurants
over the next 18 years, comprised of five restaurants under single restaurant or non-traditional development agreements, 156
restaurants under domestic multi-restaurant development agreements and 77 restaurants under international development
agreements. The signed agreements include options to build an additional 42 restaurants over the next 13 years.
During 2015, we expect our franchisees to open a total of between 50 to 60 new IHOP restaurants and a total of between
30 to 40 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, 2014, there were 34 Applebee’s franchisees that owned a total of 1,847 domestic Applebee's franchise
restaurants. The number of domestic restaurants held by an individual franchisee ranged from one restaurant to 470 restaurants.
As of December 31, 2014, there were 26 franchisees that owned a total of 147 international Applebee's franchise restaurants.
The number of international restaurants held by an individual franchisee ranged from one restaurant to 19 restaurants. Our five
largest Applebee’s franchisees own 48% of the total 1,994 Applebee's franchise restaurants.