El Pollo Loco 2015 Annual Report Download - page 16

Table of Contents
Competition
We operate in the restaurant industry, which is highly competitive and fragmented. The number, size, and strength of competitors varies by
region. Our competition includes a variety of locally-owned restaurants and national and regional chains that offer dine-in, carry-out, and
delivery services. Our competition from the broadest perspective includes restaurants, pizza parlors, convenience food stores, delicatessens,
supermarkets, and club stores. There are no significant direct competitors with respect to menus that feature marinated, fire-grilled chicken.
However, we indirectly compete with fast casual restaurants, including Chipotle, Panera, Qdoba, Rubio’s, and Taco Cabana, among others, and
with chicken-specialty QSRs and Mexican QSRs, such as Chick-fil-A, Church’s Chicken, KFC, Popeyes Louisiana Kitchen, and Taco Bell,
among others.
We believe that competition within the fast casual restaurant segment is based primarily on ambience, price, taste, quality, and freshness of menu
items, as well as on the convenience of drive-thru service. We also believe that QSR competition is based primarily on quality, taste, speed of
service, value, brand recognition, restaurant location, and customer service. In addition, we compete with franchisors of other restaurant concepts
for prospective franchisees.
Environmental Matters
Our operations are also subject to federal, state, and local laws and regulations relating to environmental protection, including regulation of
discharges into the air and water, storage and disposal of waste, and clean-
up of contaminated soil and groundwater. Under various federal, state,
and local laws, an owner or operator of real property may be liable for the cost of removal or remediation of hazardous or toxic substances on, in,
or emanating from that property. Such liability may be imposed without regard to whether the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances.
Certain of our properties may be located on sites that we know or suspect have been used by prior owners or operators as retail gas stations. Such
properties previously contained underground storage tanks (“USTs”),
and while we are not aware of any sites with USTs remaining, it is possible
that some of these properties may currently contain abandoned underground storage tanks. We are aware of contamination from a release of
hazardous materials by a previous owner at two of our owned properties and one of our leased properties. We do not believe that we have
contributed to the contamination at any of these properties. The appropriate state agencies have been notified, and these issues are being handled
without disruption to our business. It is possible that petroleum products and other contaminants may have been released at other properties into
the soil or groundwater. Under applicable federal and state environmental laws, we, as the current owner or operator of these sites, may be
jointly and severally liable for the costs of investigation and remediation for any contamination. Although we lease most of our properties, and,
when we own, we obtain certain assurances from the prior owner or often obtain indemnity agreements from third parties, we cannot assure you
that we will not be liable for environmental conditions relating to our prior, existing, or future restaurants or restaurant sites. If we were found
liable for the cost of remediation of contamination at, or emanating from, any of our properties, our operating expenses would likely increase and
our operating results would likely be materially and adversely affected.
Since 2000, we have obtained “Phase One” environmental reports for new restaurants. Where warranted, we obtain updated reports, and, if
necessary, in rare cases, we obtain “Phase Two” reports. We have not conducted a comprehensive environmental review of all of our properties
or operations. No assurance can be given that we have identified all of the potential environmental liabilities at our properties or that such
liabilities will not have a material adverse effect on our financial condition.
Regulation and Compliance
We are subject to extensive federal, state, and local government regulations, including those relating to, among other things, public health and
safety, zoning and fire codes, and franchising. Failures to obtain or retain food or
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