Baskin Robbins 2011 Annual Report Download - page 28

Our franchisees could take actions that could harm our business.
Our franchisees are contractually obligated to operate their restaurants in accordance with the operations, safety
and health standards set forth in our agreements with them. However, franchisees are independent third parties
whom we do not control. The franchisees own, operate and oversee the daily operations of their restaurants. As a
result, the ultimate success and quality of any franchised restaurant rests with the franchisee. If franchisees do not
successfully operate restaurants in a manner consistent with required standards, franchise fees paid to us and
royalty income will be adversely affected and brand image and reputation could be harmed, which in turn could
materially and adversely affect our business and operating results.
Although we believe we generally enjoy a positive working relationship with the vast majority of our franchisees,
active and/or potential disputes with franchisees could damage our brand reputation and/or our relationships with
the broader franchisee group.
Sub-franchisees could take actions that could harm our business and that of our master franchisees.
In certain of our international markets, we enter into agreements with master franchisees that permit the master
franchisee to develop and operate restaurants in defined geographic areas. As permitted by our master franchisee
agreements, certain master franchisees elect to sub-franchise rights to develop and operate restaurants in the
geographic area covered by the master franchisee agreement. Our master franchisee agreements contractually
obligate our master franchisees to operate their restaurants in accordance with specified operations, safety and
health standards and also require that any sub-franchise agreement contain similar requirements. However, we
are not party to the agreements with the sub-franchisees and, as a result, are dependent upon our master
franchisees to enforce these standards with respect to sub-franchised restaurants. As a result, the ultimate success
and quality of any sub-franchised restaurant rests with the master franchisee. If sub-franchisees do not
successfully operate their restaurants in a manner consistent with required standards, franchise fees and royalty
income paid to the applicable master franchisee and, ultimately, to us could be adversely affected, and our brand
image and reputation may be harmed, which could materially and adversely affect our business and operating
results.
Our success depends substantially on the value of our brands.
Our success is dependent in large part upon our ability to maintain and enhance the value of our brands, our
customers’ connection to our brands and a positive relationship with our franchisees. Brand value can be severely
damaged even by isolated incidents, particularly if the incidents receive considerable negative publicity or result
in litigation. Some of these incidents may relate to the way we manage our relationship with our franchisees, our
growth strategies, our development efforts in domestic and foreign markets, or the ordinary course of our, or our
franchisees’, business. Other incidents may arise from events that are or may be beyond our ability to control and
may damage our brands, such as actions taken (or not taken) by one or more franchisees or their employees
relating to health, safety, welfare or otherwise; litigation and claims; security breaches or other fraudulent
activities associated with our electronic payment systems; and illegal activity targeted at us or others. Consumer
demand for our products and our brands’ value could diminish significantly if any such incidents or other matters
erode consumer confidence in us or our products, which would likely result in lower sales and, ultimately, lower
royalty income, which in turn could materially and adversely affect our business and operating results.
The quick service restaurant segment is highly competitive, and competition could lower our revenues.
The QSR segment of the restaurant industry is intensely competitive. The beverage and food products sold by our
franchisees compete directly against products sold at other QSRs, local and regional beverage and food
operations, specialty beverage and food retailers, supermarkets and wholesale suppliers, many bearing
recognized brand names and having significant customer loyalty. In addition to the prevailing baseline level of
competition, major market players in noncompeting industries may choose to enter the restaurant industry. Key
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