Baskin Robbins 2012 Annual Report Download - page 25

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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 seven 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 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. Disruptions in these relationships may reduce
franchisee sales and, in turn, our royalty income.
Overall difficulty of suppliers (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.
We may not be able to recoup our expenditures on properties we sublease to franchisees.
Pursuant to the terms of certain prime leases we have entered into with third-party landlords, we may be required to construct
or improve a property, pay taxes, maintain insurance and comply with building codes and other applicable laws. The subleases
we enter into with franchisees related to such properties typically pass through such obligations, but if a franchisee fails to
perform the obligations passed through to them, we will be required to perform those obligations, resulting in an increase in our
leasing and operational costs and expenses. Additionally, in some locations, we may pay more rent and other amounts to third-
party landlords under a prime lease than we receive from the franchisee who subleases such property. Typically, our
franchisees' rent is based in part on a percentage of gross sales at the restaurant, so a downturn in gross sales would negatively
affect the level of the payments we receive.
If the international markets in which we compete are affected by changes in political, social, legal, economic or other
factors, our business and operating results may be materially and adversely affected.
As of December 29, 2012, we had 7,690 restaurants located in 54 foreign countries. The international operations of our
franchisees may subject us to additional risks, which differ in each country in which our franchisees operate, and such risks
may negatively affect our result in a delay in or loss of royalty income to us.
The factors impacting the international markets in which restaurants are located may include:
• recessionary or expansive trends in international markets;
• changes in foreign currency exchange rates and hyperinflation or deflation in the foreign countries in which we or the
International JVs operate;
• the imposition of restrictions on currency conversion or the transfer of funds;
• availability of credit for our franchisees, licensees and International JVs to finance the development of new
restaurants;
• increases in the taxes paid and other changes in applicable tax laws;
• legal and regulatory changes and the burdens and costs of local operators' compliance with a variety of laws, including
trade restrictions and tariffs;
• interruption of the supply of product;
• increases in anti-American sentiment and the identification of the Dunkin' Donuts brand and Baskin-Robbins brand as
American brands;
• political and economic instability; and
• natural disasters and other calamities.