Einstein Bros 2004 Annual Report Download - page 8

http://www.sec.gov/Archives/edgar/data/949373/000104746905006202/a2153240z10-k.htm[9/11/2014 10:13:29 AM]
Coffee
The majority of our coffee is purchased through a third party provider and is sold at our Einstein Bros. and Noah's locations.
Distribution
We currently utilize a network of independent distributors to distribute frozen dough and other materials to our locations. By contracting with
distributors, we are able to eliminate investment in distribution systems and to focus our managerial and financial resources on our retail
operations. We contract for virtually all food products and supplies for our company-owned store operations, including frozen dough, cream
cheese, coffee, meats and paper goods and our vendors deliver the products to our distributors for delivery to each location. The individual
locations order directly from the distributors one to three times per week.
Commissaries
We believe that our commissary system that processes bulk raw ingredients used at our company-operated stores and licensed locations
provides a competitive advantage. Our commissaries assure consistent quality, supply fresh products and improve efficiencies by reducing labor
and inventory requirements. We focus our growth in areas that allow us to continue to gain efficiencies through leveraging the fixed cost of our
current commissary structure. We distribute commissary products primarily through our regional distribution partners and locally in certain
markets through a fleet of temperature-controlled trucks operated by our personnel.
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Trademarks and Service Marks
Our rights in our trademarks and service marks (marks) are a significant part of our business. We are the owners of the federal registration of
the "Einstein Bros.," "Noah's New York Bagels," "Manhattan Bagel," "Chesapeake Bagel Bakery" and "New World Coffee" marks. Some of our
marks are also registered in several foreign countries. We are aware of a number of companies that use various combinations of words in our
marks, some of which may have senior rights to ours for such use, but we do not consider any of these uses, either individually or in the aggregate,
to materially impair the use of our marks. It is our policy to defend our marks and the associated value from encroachment by others. The marks
listed above represent the brands of the retail outlets that we own, license or franchise. We also own numerous other marks related to our business.
General Economic Trends and Seasonality
We anticipate that our business will be affected by general economic trends that affect retailers in general. While we have not operated during
a period of high inflation, we believe based on industry experience that we would generally be able to pass on increased costs resulting from
inflation to our consumers. Our business may be affected by other factors, including increases in the commodity prices of flour, butter, cheese,
coffee, dairy and/or fresh produce, energy costs, existing and additional competition, marketing programs, weather and variations in the number of
company-owned or licensed location openings and closings.
Although few, if any, employees are paid at the minimum wage, an increase in the minimum wage may create pressure to increase the pay
scale for our employees, which would increase our labor costs and those of our franchisees and licensees.
Our business is subject to seasonal trends. Generally, our revenues in the first fiscal quarter are somewhat lower than in the other three fiscal
quarters.
Competition
We experience competition from numerous sources in our trade areas. Our restaurants compete based on customers' needs for breakfast, lunch
and afternoon "chill-out" (the period after lunch and before dinner). Our competitors are different for each day-part in which we offer our
products. The competitive factors include brand awareness, location, environment, customer service, price and quality of products. We compete
for leased space in desirable locations. Certain of our competitors may have capital resources exceeding those available to us. Our primary
competitors include specialty food and casual dining restaurant retailers including national, regional and locally owned restaurants.
Government Regulation
Each of our locations is subject to licensing and regulation by a number of governmental authorities, which include health, safety, labor,
sanitation, building and fire agencies in the state or municipality in which the store is located. A failure to comply with one or more regulations