Einstein Bros 2009 Annual Report Download - page 10

Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312510040721/d10k.htm[9/11/2014 10:09:50 AM]
are focusing more on breakfast offerings and expanding their coffee offerings. This could further increase competition in the breakfast daypart. In
addition to current competitors, one or more new major competitors with substantially greater financial, marketing and operating resources could
enter the market at any time and compete directly against us. Also, in virtually every major metropolitan area in which we operate or expect to
enter, local or regional competitors already exist. This may make it more difficult to attract and retain guests and potential franchisees and
licensees.
Numerous factors including changes in consumer tastes and preferences often affect restaurants. Shifts in consumer preferences away from
our type of cuisine and/or the fast-casual style could have a material effect on our results of operations. Dietary trends, such as the consumption of
food low in carbohydrate content have, in the past, and may, in the future, negatively impact our sales. Changes in our guests’ spending habits and
preferences could have a material adverse effect on our sales. Our results will depend on our ability to respond to changing consumer preferences
and tastes. In addition, recent local and state regulations mandating prominent disclosure of nutritional and calorie information may result in
reduced demand for some of our products which could be viewed as containing too much fat or too many calories.
We occupy our company-owned restaurants under long-term non-cancelable leases, and we may be unable to renew leases at the end of their
lease periods or obtain new leases on acceptable terms.
We do not own any real property, and all of our company-owned restaurants are located in leased premises. Many of our current leases are
non-cancelable and typically have terms ranging from five to ten years with two three- to five-year renewal options. We believe leases that we
enter into in the future likely will also be long-term and non-cancelable and have similar renewal options. Most of our leases provide that the
landlord may increase the rent over the term of the lease, and require us to pay our proportionate share of the cost of insurance, taxes, maintenance
and utilities. If we close a restaurant, we generally remain committed to perform our obligations under the applicable lease, which would include,
among other things, payment of the base rent for the balance of the lease term. In some instances, we may be unable to close an underperforming
restaurant due to continuous operation clauses in our lease agreements. Our obligation to continue making rental payments in respect of leases for
closed or underperforming restaurants could have an adverse effect on our business and results of operations.
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If we are unable to renew our restaurant leases, we may be forced to close or relocate a restaurant, which could subject us to construction and
other costs and risks, and could have a material adverse effect on our business and results of operations. For example, closing a restaurant, even
during the time of relocation, will reduce the sales that the restaurant would have contributed to our revenues. Additionally, the revenue and profit,
if any, generated at a relocated restaurant may not equal the revenue and profit generated at the prior location. We also face competition from both
restaurants and other retailers for suitable sites for new restaurants.
Our operations may be negatively impacted by adverse weather conditions, natural disasters or acts of terror.
Adverse weather conditions and natural disasters may at times affect regions in which our company-owned, franchised and licensed
restaurants are located, regions that produce raw ingredients for our restaurants, or locations of our distribution network. If adverse weather
conditions or natural disasters such as fires and hurricanes affect our restaurants, we could experience closures, repair and restoration costs, food
spoilage, and other significant reopening costs as well as increased food costs and delayed supply shipments, any of which would adversely affect
our business. In addition, if adverse weather or natural disasters affect our distribution network, we could experience shortages or delayed
shipments at our restaurants, which could adversely affect them. Additionally, during periods of extreme temperatures (either hot or cold) or
precipitation, many individuals choose to stay inside. This impacts transaction counts in our restaurants and could adversely affect our business and
results of operations.
The effects of hurricanes, fires, snowstorms, freezes and other adverse weather conditions are likely to affect supply of and costs for raw
ingredients and natural resources, near-term construction costs for our new restaurants as well as sales in our restaurants going forward. If we do
not anticipate or react to changing costs of food and other raw materials by adjusting our purchasing practices or menu prices, our operating
margins would likely deteriorate.
The impact on our business from terrorism (including cyber-terrorism) could have an adverse impact on our brand and results of operations.
We have single suppliers for one of our key products, and the failure of any of these suppliers to perform could harm our business.
We currently purchase our raw materials from various suppliers; however, we have only one supplier for some of our key products. We
purchase all of our cream cheese from a single source. Also, we purchase a majority of our frozen bagel dough from one supplier, who uses our
proprietary processes and on whom we are dependent in the short-term. All of our remaining frozen bagel dough is produced at our dough
manufacturing facility in Whittier, California or by a second supplier. Although to date we have not experienced significant difficulties with our
suppliers, our reliance on a single supplier for most of our key ingredients subjects us to a number of risks, including possible delays or
interruption in supplies, diminished control over quality and a potential lack of adequate raw material capacity. Any disruption in the supply or