El Pollo Loco 2016 Annual Report Download - page 13

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otherlicensesandregistrations,orexemptionsthereto,wouldadverselyaffecttheoperationsof
restaurants.Althoughwehavenotexperienced,anddonotanticipate,anysignificantproblemsinobtainingrequiredlicenses,permits,orapprovals,any
difficulties,delays,orfailuresinobtainingsuchlicenses,permits,registrations,exemptions,orapprovalscoulddelayorpreventtheopeningof,oradverselyimpact
theviabilityof,arestaurantinaparticulararea.
Thedevelopmentandconstructionofadditionalrestaurantswillbesubjecttocompliancewithapplicablezoning,landuseandenvironmentalregulations.We
believethatfederalandstateenvironmentalregulationshavenothadamaterialeffectonoperations,butmorestringentandvariedrequirementsoflocal
governmentbodieswithrespecttozoning,landuse,andenvironmentalfactorscoulddelayconstructionandincreasedevelopmentcostsfornewrestaurants.
WearealsosubjecttotheFairLaborStandardsAct,theImmigrationReformandControlActof1986,andvariousfederal,stateandlocallawsgoverningsuch
mattersasminimumwages,overtime,unemploymenttaxrates,workers’compensationrates,citizenshiprequirements,andotherworkingrequirementsand
conditions.Asignificantportionofourhourlystaffispaidatratesconsistentwiththe
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