Einstein Bros 2012 Annual Report Download - page 5

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10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312513085036/d445565d10k.htm[9/11/2014 10:07:50 AM]
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Product Supply: Our purchasing programs provide our restaurants with high quality ingredients at competitive prices from reliable
sources. Consistent product specifications, as well as purchasing guidelines, help to ensure freshness and quality. Our company-owned
restaurants purchase their products from approved vendors and/or from our manufacturing facility (at cost). Because we utilize fresh
ingredients in most of our menu offerings, our inventory is maintained at modest levels.
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• Trademarks and service marks: Our rights in our trademarks and service marks are a significant part of all segments of our business.
We are the owners of the federal registration rights to the “Einstein Bros.,” “Noah’ s New York Bagels” and “Manhattan Bagel” marks,
as well as several related word marks and word and design marks related to our core brands. We license the rights to use certain
trademarks we own or license to our franchisees and licensees in connection with their operations. Many of our core brand trademarks
are also registered in numerous foreign countries. We are party to a co-existence agreement with the Hebrew University of Jerusalem
(“HUJ”), which sets forth the terms under which we can use the name Einstein Bros. and the terms and restrictions under which HUJ
could license the name and likenesses associated with the Estate of Albert Einstein to a business that competes with us. We also own
numerous other trademarks and service marks related to our other brands. 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 their
associated goodwill against encroachment by others.
• Government Regulation: Our restaurants are subject to licensing and regulation by a number of governmental authorities, which include
health, safety, labor, sanitation, building and fire agencies in the state, county, or municipality in which the restaurant is located. A
failure to comply with one or more regulations could result in the imposition of sanctions, including the closing of restaurants for an
indeterminate period of time, fines or third party litigation.
• Seasonality: Our business is subject to seasonal fluctuations. Because of the seasonality of the business and the industry, results for any
quarter are not necessarily indicative of the results that may be achieved for any other quarter or the full fiscal year.
• Competition: The restaurant industry is intensely competitive. We experience competition from numerous sources in our trade areas.
Our competitors are different for each daypart, with competition based on guests’ needs for breakfast, lunch and afternoon snacks. The
competitive factors include brand awareness, advertising effectiveness, location and attractiveness of facilities, hospitality, environment,
quality and speed of guest service and the price/value of products offered. We compete in the fast-casual segment of the restaurant
industry, but we also consider other restaurants in the fast-food, specialty food and full-service segments to be our competitors.
Manufacturing and Commissaries:
We generated approximately 7% of our fiscal 2012 total revenue from our manufacturing operations.
• Manufacturing: We currently operate a bagel dough manufacturing facility in Whittier, California and have contracts with two suppliers
to produce bagel dough and sweets to our specifications. These facilities provide frozen dough, partially-baked frozen bagels and fully
baked sweets for our company-owned restaurants, franchisees and licensees. We use excess capacity to produce bagels for sale to third
party resellers.
• Commissaries: We began the process of closing all our commissaries in September 2011 and completed the closures by March 2012.
We decided to close our commissaries in an effort to streamline our supply chain and to reduce our costs. We estimate savings of
approximately $1.5 million occurred in 2012 as a result of these closures and anticipate that the closing of these facilities will result in
continued future annual cost savings of approximately $1.5 million. We recorded restructuring charges of $0.7 million during fiscal
2011 and $0.5 million during fiscal 2012 related to these closings. The commissaries accounted for less than 1% of our fiscal 2012 total
revenue.
• Product supply: We have proprietary recipes and production processes for our bagel dough, cream cheese and coffee. We believe these
recipes ensure product consistency and that our processes provide
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for the delivery of a variety of consistent, superior quality products at competitive market prices to our company-owned, franchised
and licensed restaurants.