Baskin Robbins 2011 Annual Report Download - page 34

advertising funds). When a franchisee selects an invoice and submits the payment, on the following day a
withdrawal for the selected amount is initiated from the franchisee’s bank. Despite the implementation of
security measures, our systems, including the FAST System and the EFTPay System, are subject to damage and/
or interruption as a result of power outages, computer and network failures, computer viruses and other
disruptive software, security breaches, catastrophic events and improper usage by employees. Such events could
result in a material disruption in operations, a need for a costly repair, upgrade or replacement of systems, or a
decrease in, or in the collection of, royalties paid to us by our franchisees. To the extent that any disruption or
security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of
confidential or proprietary information, we could incur liability which could materially affect our results of
operations.
Interruptions in the supply of product to franchisees and licensees could adversely affect our revenues.
In order to maintain quality-control standards and consistency among restaurants, we require through our
franchise agreements that our franchisees obtain food and other supplies from preferred suppliers approved in
advance. In this regard, we and our franchisees depend on a group of suppliers for ingredients, foodstuffs,
beverages and disposable serving instruments including, but not limited to, Rich Products Corp., Dean Foods
Co., DBCL, PepsiCo, Inc. and Silver Pail Dairy, Ltd. as well as five primary coffee roasters and three primary
donut mix suppliers. In 2011, we and our franchisees purchased products from over 450 approved domestic
suppliers, with approximately 15 of such suppliers providing half, based on dollar volume, of all products
purchased domestically. We look to approve multiple suppliers for most products, and require any single sourced
supplier, such as PepsiCo, Inc., to have audited contingency plans in place to ensure continuity of supply. In
addition we believe that, if necessary, we could obtain readily available alternative sources of supply for each
product that we currently source through a single supplier. To facilitate the efficiency of our franchisees’ supply
chain, we have historically entered into several preferred-supplier arrangements for particular food or beverage
items.
The Dunkin’ Donuts system is supported domestically by the franchisee-owned purchasing and distribution
cooperative known as the National Distributor Commitment Program. We have a long-term agreement with the
National DCP, LLC (the “NDCP”) for the NDCP to provide substantially all of the goods needed to operate a
Dunkin’ Donuts restaurant in the U.S. The NDCP also supplies some international markets. The NDCP
aggregates the franchisee demand, sends requests for proposals to approved suppliers and negotiates contracts for
approved items. The NDCP also inventories the items in its four regional distribution centers and ships products
to franchisees at least one time per week. We do not control the NDCP and have only limited contractual rights
under our agreement with the NDCP associated with supplier certification and quality assurance and protection
of our intellectual property. While the NDCP maintains contingency plans with its approved suppliers and has a
contingency plan for its own distribution function to restaurants, our franchisees bear risks associated with the
timeliness, solvency, reputation, labor relations, freight costs, price of raw materials and compliance with health
and safety standards of each supplier (including DBCL and those of the International JVs) including, but not
limited to, risks associated with contamination to food and beverage products. We have little control over such
suppliers other than DBCL, which produces ice cream for resale by us. Disruptions in these relationships may
reduce franchisee sales and, in turn, our royalty income.
Overall difficulty of suppliers (including DBCL and those of the International JVs) meeting franchisee product
demand, interruptions in the supply chain, obstacles or delays in the process of renegotiating or renewing
agreements with preferred suppliers, financial difficulties experienced by suppliers, or the deficiency, lack, or
poor quality of alternative suppliers could adversely impact franchisee sales which, in turn, would reduce our
royalty income and could materially and adversely affect our business and operating results.
-24-