Dunkin' Donuts 2011 Annual Report Download - page 29

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competitive factors include the number and location of restaurants, quality and speed of service, attractiveness of
facilities, effectiveness of advertising, marketing and operational programs, price, demographic patterns and
trends, consumer preferences and spending patterns, menu diversification, health or dietary preferences and
perceptions and new product development. Some of our competitors have substantially greater financial and
other resources than us, which may provide them with a competitive advantage. In addition, we compete within
the restaurant industry and the QSR segment not only for customers but also for qualified franchisees. We cannot
guarantee the retention of any, including the top-performing, franchisees in the future, or that we will maintain
the ability to attract, retain, and motivate sufficient numbers of franchisees of the same caliber, which could
materially and adversely affect our business and operating results. If we are unable to maintain our competitive
position, we could experience lower demand for products, downward pressure on prices, the loss of market share
and the inability to attract, or loss of, qualified franchisees, which could result in lower franchise fees and royalty
income, and materially and adversely affect our business and operating results.
We cannot predict the impact that the following may have on our business: (i) new or improved technologies,
(ii) alternative methods of delivery or (iii) changes in consumer behavior facilitated by these technologies and
alternative methods of delivery.
Advances in technologies or alternative methods of delivery, including advances in vending machine technology
and home coffee makers, or certain changes in consumer behavior driven by these or other technologies and
methods of delivery could have a negative effect on our business. Moreover, technology and consumer offerings
continue to develop, and we expect that new or enhanced technologies and consumer offerings will be available
in the future. We may pursue certain of those technologies and consumer offerings if we believe they offer a
sustainable customer proposition and can be successfully integrated into our business model. However, we
cannot predict consumer acceptance of these delivery channels or their impact on our business. In addition, our
competitors, some of whom have greater resources than us, may be able to benefit from changes in technologies
or consumer acceptance of alternative methods of delivery, which could harm our competitive position. There
can be no assurance that we will be able to successfully respond to changing consumer preferences, including
with respect to new technologies and alternative methods of delivery, or to effectively adjust our product mix,
service offerings and marketing and merchandising initiatives for products and services that address, and
anticipate advances in, technology and market trends. If we are not able to successfully respond to these
challenges, our business, financial condition and operating results could be harmed.
Economic conditions adversely affecting consumer discretionary spending may negatively impact our business
and operating results.
We believe that our franchisees’ sales, customer traffic and profitability are strongly correlated to consumer
discretionary spending, which is influenced by general economic conditions, unemployment levels and the
availability of discretionary income. Recent economic developments have weakened consumer confidence and
impacted spending of discretionary income. Our franchisees’ sales are dependent upon discretionary spending by
consumers; any reduction in sales at franchised restaurants will result in lower royalty payments from franchisees
to us and adversely impact our profitability. If the economic downturn continues for a prolonged period of time
or becomes more pervasive, our business and results of operations could be materially and adversely affected. In
addition, the pace of new restaurant openings may be slowed, and restaurants may be forced to close, reducing
the restaurant base from which we derive royalty income. As long as the weak economic environment continues,
our franchisees’ sales and profitability and our overall business and operating results could be adversely affected.
Our substantial indebtedness could adversely affect our financial condition.
We have a significant amount of indebtedness. As of December 31, 2011, we had total indebtedness of
approximately $1.5 billion, excluding $11.2 million of undrawn letters of credit and $88.8 million of unused
commitments under our senior credit facility.
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