El Pollo Loco 2016 Annual Report Download - page 16

Our growth strategy depends in part on opening new re staurants in existing and new markets and expanding our franchise system. We may be unsuccessful in
opening new company-operated or franchised restaurants or in establishing new markets, which could adversely affect our growth.
Oneofthekeymeanstoachievingourgrowthstrategywillbethroughopeningnewrestaurantsandoperatingthoserestaurantsonaprofitablebasis.Weopened14
newcompany-operatedrestaurantsinfiscal2015andplantoopenanestimated18to22infiscal2016.Ourfranchiseesopenedfivenewrestaurantsinfiscal2015
andplantoopen10to15infiscal2016.Theabilitytoopennewrestaurantsisdependentuponanumberoffactors,manyofwhicharebeyondourcontrol,
includingourandourfranchisees’abilitiesto:
·identifyavailableandsuitablerestaurantsites;
·competeforrestaurantsites;
·reachacceptableagreementsregardingtheleaseorpurchaseoflocations;
·obtainorhaveavailablethefinancingrequiredtoacquireandoperatearestaurant,includingconstructionandopeningcosts;
·respondtounforeseenengineeringorenvironmentalproblemswithleasedpremises;
·avoidtheimpactofinclementweatherandnaturalandman-madedisasters;
·hire,train,andretaintheskilledmanagementandotheremployeesnecessarytomeetstaffingneeds;
·obtain,inatimelymannerandforanacceptablecost,requiredlicenses,permits,andregulatoryapprovals;
·respondeffectivelytoanychangesinlocal,state,andfederallawandregulationsthatadverselyaffectourandourfranchisees’costsorabilitiestoopennew
restaurants;and
·controlconstructionandequipmentcostincreasesfornewrestaurants.
Thereisnoguaranteethatasufficientnumberofsuitablerestaurantsiteswillbeavailableindesirableareasorontermsthatareacceptabletousinordertoachieve
ourgrowthplan.Ifweareunabletoopennewrestaurantsorsignnewfranchisees,orifrestaurantopeningsaresignificantlydelayed,ourearningsorrevenue
growthandourbusinesscouldbemateriallyandadverselyaffected,asweexpectaportionofourgrowthtocomefromnewlocations.
Aspartofourlonger-termgrowthstrategy,wemayenterintogeographicmarketsinwhichwehavelittleornoprioroperatingorfranchisingexperience,through
company-operatedrestaurantgrowthandfranchisedevelopmentagreements.Thechallengesofenteringnewmarketsinclude(i)difficultiesinhiringexperienced
personnel,(ii)unfamiliaritywithlocalrealestatemarketsanddemographics,(iii)consumerunfamiliaritywithourbrand,and(iv)competitiveandeconomic
conditions,consumertastes,anddiscretionaryspendingpatternsthataredifferentfromandmoredifficulttopredictorsatisfythaninourexistingmarkets.
Consumerrecognitionofourbrandhasbeenimportantforoursuccessinourexistingmarkets.Inaddition,restaurantsthatweopeninnewmarketsmaytake
longertoreachexpectedsalesandprofitlevelsonaconsistentbasis,andmayhavehigherconstruction,occupancy,andoperatingcosts,thanrestaurantsthatwe
openinexistingmarkets,therebyaffectingouroverallprofitability.Anyfailureonourparttorecognizeorrespondtothesechallengesmayadverselyaffectthe
successofanynewrestaurants.Expandingourfranchisesystemcouldrequiretheimplementation,expense,andsuccessfulmanagementofenhancedbusiness
supportsystems,managementinformationsystems,andfinancialcontrols,aswellasadditionalstaffing,franchisesupport,andcapitalexpendituresandworking
capital.
Attheendoffiscal2009,wehad21system-widerestaurants,alloriginallydevelopedbyfranchisees,openeastoftheRockyMountains.However,by2012,allof
theserestaurantshadbeenclosed.Wemayencountersimilarissueswithourcurrentgrowthstrategy,whichcouldmateriallyandadverselyaffectourbusiness,
financialcondition,resultsofoperations,andcashflow.
Duetobrandrecognitionandlogisticalsynergies,aspartofourgrowthstrategy,wealsointendtoopennewrestaurantsinareaswherewehaveexisting
restaurants.Theoperatingresultsandcomparablerestaurantsalesforourrestaurantscouldbeadverselyaffectedduetoincreasingproximityamongourrestaurants
andduetomarketsaturation.
Changes in food and supply costs, especially for chicken, could adversely affect our business, financial condition, and results of operations.
Ourprofitabilitydependsinpartonourabilitytoanticipateandreacttochangesinfoodandsupplycosts.Wearesusceptibletoincreasesinfoodcostsasaresult
offactorsbeyondourcontrol,suchasgeneraleconomicconditions,seasonaleconomicfluctuations,weatherconditions,globaldemand,foodsafetyconcerns,
infectiousdiseases,fluctuationsintheU.S.dollar,productrecalls,andgovernmentregulations.Thecostsofmanybasicfoodsforhumansandanimals,including
corn,wheat,cornflourandotherflour,rice,andcookingoil,haveincreasedmarkedlyinrecentyears,resultinginupwardpricingpressuresonalmostallofour
rawingredients,including
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