Baskin Robbins 2012 Annual Report Download - page 13

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We help domestic franchisees select sites and develop restaurants that conform to the physical specifications of our typical
restaurant. Each domestic franchisee is responsible for selecting a site, but must obtain site approval from us based on
accessibility, visibility, proximity to other restaurants, and targeted demographic factors including population density and traffic
patterns. Additionally, the franchisee must also refurbish and remodel each restaurant periodically (typically every five and ten
years, respectively).
We currently require each domestic franchisee's managing owner and designated manager to complete initial and ongoing
training programs provided by us, including minimum periods of classroom and on-the-job training. We monitor quality and
endeavor to ensure compliance with our standards for restaurant operations through restaurant visits in the U.S. In addition, a
formal restaurant review is conducted throughout our domestic operations at least once per year and comprises two separate
restaurant visits. To complement these procedures, we use “Guest Satisfaction Surveys” in the U.S. to assess customer
satisfaction with restaurant operations, such as product quality, restaurant cleanliness and customer service. Within each of our
master franchisee and joint venture organizations, training facilities have been established by the master franchisee or joint
venture based on our specifications. From those training facilities, the master franchisee or joint venture trains future staff
members of the international restaurants. Our master franchisees and joint venture entities also periodically send their primary
training managers to the U.S. for re-certification.
Store development agreements
We grant domestic franchisees the right to open one or more restaurants within a specified geographic area pursuant to the
terms of store development agreements ("SDAs"). An SDA specifies the number of restaurants and the mix of the brands
represented by such restaurants that a franchisee is obligated to open. Each SDA also requires the franchisee to meet certain
milestones in the development and opening of the restaurant and, if the franchisee meets those obligations, we agree, during the
term of such SDA, not to operate or franchise new restaurants in the designated geographic area covered by such SDA. In
addition to an SDA, a franchisee signs a separate franchise agreement for each restaurant developed under such SDA.
Master franchise model and international arrangements
Master franchise arrangements are used on a limited basis domestically (the Baskin-Robbins brand has two “territory”
franchise agreements for certain Midwestern and Northwestern markets) but more widely internationally for both the Baskin-
Robbins brand and the Dunkin' Donuts brand. In addition, international arrangements include single unit franchises in Canada
(both brands), the United Kingdom and Australia (Baskin-Robbins brand) as well as joint venture agreements in Korea (both
brands) and Japan (Baskin-Robbins brand).
Master franchise agreements are the most prevalent international relationships for both brands. Under these agreements, the
applicable brand grants the master franchisee the exclusive right to develop and operate a certain number of restaurants within a
particular geographic area, such as selected cities, one or more provinces or an entire country, pursuant to a development
schedule that defines the number of restaurants that the master franchisee must open annually. Those development schedules
customarily extend for five to ten years. If the master franchisee fails to perform its obligations, the exclusivity provision of the
agreement terminates and additional franchise agreements may be put in place to develop restaurants.
The master franchisee is required to pay an upfront initial franchise fee for each developed restaurant and, for the Dunkin'
Donuts brand, royalties. For the Baskin-Robbins brand, the master franchisee is typically required to purchase ice cream from
Baskin-Robbins or an approved supplier. In most countries, the master franchisee is also required to spend a certain percentage
of gross sales on advertising in such foreign country in order to promote the brand. Generally, the master franchise agreement
serves as the franchise agreement for the underlying restaurants operating pursuant to such model. Depending on the individual
agreement, we may permit the master franchisee to subfranchise with its territory.
Franchise fees
In the U.S., once a franchisee is approved, a restaurant site is approved and a franchise agreement is signed, the franchisee will
begin to develop the restaurant. Franchisees pay us an initial franchise fee for the right to operate a restaurant for one or more
franchised brands. The franchisee is required to pay all or part of the initial franchise fee upfront upon execution of the
franchise agreement, regardless of when the restaurant is actually opened. Initial franchise fees vary by brand, type of
development agreement and geographic area of development, but generally range from $10,000 to $90,000, as shown in the
table below.