Pizza Hut 2010 Annual Report Download - page 104

7
Supply and Distribution
The Company’s Concepts, including Concept units operated by its franchisees, are substantial purchasers 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. All
restaurants, regardless of their ownership structure or location, must adhere to strict food quality and safety standards.
The guidelines are translated to local market requirements and regulations where appropriate and without compromising
the standards. 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
Concepts may attempt to pass on such increases to their 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.
This arrangement combines the purchasing power of the Concept-owned 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 restaurant operations are distributed to
individual restaurant units by third party distribution companies. McLane Company, Inc. (“McLane”) is the exclusive
distributor for the majority of items used in Concept-owned restaurants in the U.S. and for a substantial number of
franchisee and licensee stores. The Company entered into a new agreement with McLane effective January 1, 2011
relating to distribution to Concept-owned restaurants in the U.S. This agreement extends through December 31, 2016 and
generally restricts Concept-owned restaurants from using alternative distributors in the U.S. for most products.
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 and own the entire distribution system. In our YRI markets we have approximately 1,500
suppliers, including U.S.-based suppliers that export to many countries.
Form 10-K