Papa Johns 2010 Annual Report Download - page 16

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Under our standard domestic development agreement, the franchisee is required to pay, at the time of
signing the agreement, a non-refundable fee of $25,000 for the first restaurant and $5,000 for any
additional restaurants. The non-refundable fee is credited against the standard $25,000 franchise fee
payable to us upon signing the franchise agreement for a specific location. Generally, a franchise
agreement is executed when a franchisee secures a location. Our current standard development agreement
requires the franchisee to pay a royalty fee of 5% of sales and the majority of our existing franchised
restaurants also have a 5% royalty rate effective December 27, 2010.
Domestic Franchise Development Incentives. In 2009 and 2010 we provided development incentives to
domestic restaurants. Such incentives included the waiver of the $25,000 franchise fee and reduced
royalties for 12 months following the opening date (2009 included a waiver of 100% of the standard
royalty rate and 2010 included a waiver of 40% to 100% of the standard royalty rate depending on the
opening date). Additionally, under the 2009 program, a $10,000 cash incentive was paid to franchisees
opening a restaurant on or before the scheduled opening date. The program was expanded in 2010 to
offer either the $10,000 cash incentive or a 24-month no-payment lease on two ovens with the option to
purchase the ovens for $50 per oven at the end of the 24-month lease. The 2011 incentive program for
traditional unit openings includes: (1) no franchise fee, (2) the waiver of the 5% royalty fee - waived for
twelve months from opening if opened January through June, for nine months from opening if opened
July through September and for six months from opening if opened October through December, (3) a 24-
month no-payment lease on two ovens with the option to purchase the ovens for $50 per oven at the end
of the 24-month lease, and (3) a $3,300 credit to be applied toward a future POS purchase, under certain
circumstances. We believe the development incentive programs have increased unit openings in 2009 and
2010, and expect they will continue to do so in 2011. See Franchise Support Initiatives for additional
information.
Franchise Support Initiatives. During 2009 and 2010, the Company provided domestic franchise system
support initiatives in response to the difficult economic environment. The initiatives included:
• Providing cheese cost relief by modifying the cheese pricing formula used by BIBP beginning in
2009;
• Providing food cost relief by lowering the commissary margin on certain commodities sold by
PJFS to the franchise system and by providing incentive rebate opportunities in 2010 to the
franchise system;
• Providing additional system-wide national marketing contributions that amounted to $6.0 million
in 2010 and $7.7 million in 2009;
• Providing additional system-wide local print marketing contributions and certain system-wide
incentives totaling $500,000 in 2010 and $1.9 million in 2009;
• Providing targeted royalty relief and local marketing support to assist certain identified
franchisees or markets, which amounted to $5.1 million in 2010 and $4.7 million in 2009;
• Providing restaurant opening incentives of $1.0 million in 2010 and $400,000 in 2009; and
• Providing financing on a selected basis to assist new or existing franchisees with the acquisition
of troubled franchise restaurants.
For 2011, we plan to continue certain domestic franchise support initiatives such as offering incentive
programs to franchisees to increase comparable sales, comparable transactions and online sales, make
certain re-image improvements to their restaurants and provide targeted royalty relief and local marketing
support to assist certain identified franchisees or markets, although our expectation is that the amount of
such support initiatives will be reduced from 2010 levels.