Baskin Robbins 2013 Annual Report Download - page 25

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used by our U.S. and Canadian franchisees to make payments against open, non-fee invoices (i.e., all invoices except royalty
and 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., The Coca-Cola Company, and Silver Pail Dairy, Ltd. as well as four
primary coffee roasters and three primary donut mix suppliers. In 2013, we and our franchisees purchased products from over
400 approved domestic suppliers, with approximately 12 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 The Coca-Cola Company, to have 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 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 28, 2013, we had 8,014 international 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.