Pizza Hut 2008 Annual Report Download - page 129

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Supply and Distribution
The Company is a substantial purchaser of a number of food and paper products, equipment and other restaurant supplies.
The principal items purchased include chicken, cheese, beef and pork products, seafood, paper and packaging materials.
The Company is committed to conducting its business in an ethical, legal and socially responsible manner. Our suppliers
are selected, assessed and rewarded through a rigorous audit system that sets and monitors standards for all of our brands’
key suppliers. All of our restaurants, regardless of their ownership structure or location, must adhere to our strict food
quality and safety standards. The guidelines are translated to local market requirements and regulations where appropriate
and without compromising the standards. Long-term contracts and long-term vendor relationships are used to ensure
availability of products. The Company has not experienced any significant continuous shortages of supplies, and
alternative sources for most of these products are generally available. Prices paid for these supplies fluctuate. When
prices increase, the Company may be able to pass on such increases to its customers, although there is no assurance that
this can be done practically.
U.S. Division. The Company, along with the representatives of the Company’s KFC, Pizza Hut, Taco Bell, LJS and
A&W franchisee groups, are members in the Unified FoodService Purchasing Co-op, LLC (the “Unified Co-op”) which
was created for the purpose of purchasing certain restaurant products and equipment in the U.S. The core mission of the
Unified Co-op is to provide the lowest possible sustainable store-delivered prices for restaurant products and equipment
while ensuring compliance with certain quality and safety standards. This arrangement combines the purchasing power of
the Company and franchisee restaurants in the U.S. which the Company believes leverages the system’s scale to drive cost
savings and effectiveness in the purchasing function. The Company also believes that the Unified Co-op has resulted, and
should continue to result, in closer alignment of interests and a stronger relationship with its franchisee community.
Most food products, paper and packaging supplies, and equipment used in the operation of the Company’s restaurants are
distributed to individual restaurant units by third party distribution companies. McLane Company, Inc. (“McLane”) is the
exclusive distributor for Company-operated restaurants in the U.S. and for a substantial number of franchisee and licensee
stores. McLane became the distributor when it assumed all distribution responsibilities under an existing agreement
between Ameriserve Food Distribution, Inc. (“AmeriServe”) and the Company. This agreement extends through October
31, 2010 and generally prohibits Company-operated restaurants from using alternative distributors in the U.S.
International and China Divisions. Outside of the U.S. we and our franchisees use decentralized sourcing and distribution
systems involving many different global, regional, and local suppliers and distributors. In China, we work with
approximately 500 suppliers. In our YRI markets we have approximately 1,400 suppliers, including U.S.-based suppliers
that export to many countries. In certain countries, we own all or a portion of the distribution system, including China
where we own the entire distribution system.
Trademarks and Patents
The Company and its Concepts own numerous registered trademarks and service marks. The Company believes that
many of these marks, including its Kentucky Fried Chicken®, KFC®, Pizza Hut®, Taco Bell® and Long John Silver’s®
marks, have significant value and are materially important to its business. The Company’s policy is to pursue registration
of its important marks whenever feasible and to oppose vigorously any infringement of its marks. The Company also
licenses certain A&W trademarks and service marks (the “A&W Marks”), which are owned by A&W Concentrate
Company (formerly A&W Brands, Inc.). A&W Concentrate Company, which is not affiliated with the Company, has
granted the Company an exclusive, worldwide (excluding Canada), perpetual, royalty-free license (with the right to
sublicense) to use the A&W Marks for restaurant services.
The use of these marks by franchisees and licensees has been authorized in KFC, Pizza Hut, Taco Bell, LJS and A&W
franchise and license agreements. Under current law and with proper use, the Company’s rights in its marks can generally
last indefinitely. The Company also has certain patents on restaurant equipment which, while valuable, are not material to
its business.
Form 10-K