Baskin Robbins 2013 Annual Report Download - page 24

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face many challenges in opening new restaurants, including:
• availability of financing;
• selection and availability of suitable restaurant locations;
• competition for restaurant sites;
• negotiation of acceptable lease and financing terms;
• securing required domestic or foreign governmental permits and approvals;
• consumer tastes in new geographic regions and acceptance of our products;
• employment and training of qualified personnel;
• impact of inclement weather, natural disasters, and other acts of nature; and
• general economic and business conditions.
In particular, because the majority of our new restaurant development is funded by franchisee investment, our growth strategy
is dependent on our franchisees' (or prospective franchisees') ability to access funds to finance such development. We do not
provide our franchisees with direct financing and therefore their ability to access borrowed funds generally depends on their
independent relationships with various financial institutions. If our franchisees (or prospective franchisees) are not able to
obtain financing at commercially reasonable rates, or at all, they may be unwilling or unable to invest in the development of
new restaurants, and our future growth could be adversely affected.
To the extent our franchisees are unable to open new stores as we anticipate, our revenue growth would come primarily from
growth in comparable store sales. Our failure to add a significant number of new restaurants or grow comparable store sales
would adversely affect our ability to increase our revenues and operating income and could materially and adversely harm our
business and operating results.
Increases in commodity prices may negatively affect payments from our franchisees and licensees.
Coffee and other commodity prices are subject to substantial price fluctuations, stemming from variations in weather patterns,
shifting political or economic conditions in coffee-producing countries, and delays in the supply chain. If commodity prices
rise, franchisees may experience reduced sales, due to decreased consumer demand at retail prices that have been raised to
offset increased commodity prices, which may reduce franchisee profitability. Any such decline in franchisee sales will reduce
our royalty income, which in turn may materially and adversely affect our business and operating results.
Our joint ventures in Japan and South Korea (the “International JVs”), as well as our licensees in Russia and India,
manufacture ice cream products independently. Each of the International JVs owns a manufacturing facility in its country of
operation. The revenues derived from the International JVs differ fundamentally from those of other types of franchise
arrangements in the system because the income that we receive from the International JVs is based in part on the profitability,
rather than the gross sales, of the restaurants operated by the International JVs. Accordingly, in the event that the International
JVs experience staple ingredient price increases that adversely affect the profitability of the restaurants operated by the
International JVs, that decrease in profitability would reduce distributions by the International JVs to us, which in turn could
materially and adversely impact our business and operating results.
Shortages of coffee could adversely affect our revenues.
If coffee consumption continues to increase worldwide or there is a disruption in the supply of coffee due to natural disasters,
political unrest, or other calamities, the global coffee supply may fail to meet demand. If coffee demand is not met, franchisees
may experience reduced sales which, in turn, would reduce our royalty income. Such a reduction in our royalty income may
materially and adversely affect our business and operating results.
We and our franchisees rely on computer systems to process transactions and manage our business, and a disruption or a
failure of such systems or technology could harm our ability to effectively manage our business.
Network and information technology systems are integral to our business. We utilize various computer systems, including our
FAST System and our EFTPay System, which are customized, web-based systems. The FAST System is the system by which
our U.S. and Canadian franchisees report their weekly sales and pay their corresponding royalty fees and required advertising
fund contributions. When sales are reported by a U.S. or Canadian franchisee, a withdrawal for the authorized amount is
initiated from the franchisee's bank after 12 days (from the week ending or month ending date). The FAST System is critical to
our ability to accurately track sales and compute royalties due from our U.S. and Canadian franchisees. The EFTPay System is