Jack In The Box 2014 Annual Report Download - page 13

We seek to manage food and commodity costs, including through extended fixed price contracts, strong category and commodity management, and
purchasing fundamentals. However, certain commodities such as beef and pork, which represent approximately 20% and 6%, respectively, of our
consolidated commodity spend, do not lend themselves to fixed price contracts.
We cannot assure you that we will successfully enter into fixed price contracts on a timely basis or on commercially favorable pricing terms. In addition,
although we have fixed price contracts for produce, we are subject to force majeure clauses resulting from weather or acts of God that may result in temporary
spikes in costs.
Further, we cannot assure you that we or our franchisees will be able to successfully anticipate and react effectively to changing food and commodity
costs by adjusting our purchasing practices or menu offerings. We also may not be able to pass along to our customers price increases as a result of adverse
economic conditions, competitive pricing or other factors. Therefore, variability of food and other commodity costs could adversely affect our profitability
and results of operations.
A significant number of our Jack in the Box and Qdoba restaurants are company-operated, so we continue to have exposure to operating cost issues.
Exposure to these fluctuating costs, including increases in commodity costs, could negatively impact our margins as well as franchise margins and franchisee
financial health.
Risk Related to Our Brands and Reputation. Multi-unit food service businesses such as ours can be materially and adversely affected by widespread
negative publicity of any type, particularly regarding food quality, nutritional content, safety or public health issues (such as epidemics or the prospect of a
pandemic), obesity or other health concerns, and employee relations issues, among other things. Adverse publicity in these areas could damage the trust
customers place in our brands. The increasingly widespread use of mobile communications and social media applications has amplified the speed and scope
of adverse publicity and could hamper our ability to promptly correct misrepresentations or otherwise respond effectively to negative publicity.
To minimize the risk of food-borne illness, we have put in place HACCP and Food Safety Management Plans for managing food safety in our restaurants
and with our vendors. Nevertheless, food safety risks cannot be completely eliminated. Any outbreak of illness attributed to company or franchised
restaurants, or within the food service industry, or any widespread negative publicity regarding our brands or the restaurant industry in general could cause a
decline in our and our franchisees’ restaurant sales, and could have a material adverse effect on our financial condition and results of operations.
In addition, the success of our business strategy depends on the value and relevance of our brands and reputation. If customers perceive that we and our
franchisees fail to deliver a consistently positive and relevant experience, our brands could suffer. This could have an adverse effect on our business.
Moreover, while we devote considerable efforts and resources to protecting our trademarks and other intellectual property, if these efforts are not successful,
the value of our brands may be harmed. This could also have a material adverse effect on our business.
Supply and Distribution Risks. Dependence on frequent deliveries of fresh produce and other food products subjects food service businesses such as ours
to the risk that shortages or interruptions in supply could adversely affect the availability, quality and cost of ingredients or require us to incur additional
costs to obtain adequate supplies. Deliveries of supplies may be affected by adverse weather conditions, natural disasters, distributor or supplier financial or
solvency issues, product recalls, or other issues. In addition, if any of our distributors, suppliers, vendors or other contractors fail to meet our quality standards
or otherwise do not perform adequately, or if any one or more of such entities seeks to terminate its agreement or fails to perform as anticipated, or if there is
any disruption in any of our distribution or supply relationships or operations for any reason, our business, financial condition and results of operations may
be materially affected.
Risks Associated with Severe Weather and Natural Disasters. Food service businesses such as ours can be materially and adversely affected by severe
weather conditions, such as severe storms, hurricanes, flooding, prolonged drought or protracted heat or cold waves, and natural disasters, such as earthquakes
and wild fires, and their aftermath. Any of these can result in:
• lost restaurant sales when consumers stay home or are physically prevented from reaching the restaurants;
• property damage, loss of product, and lost sales when locations are forced to close for extended periods of time;
• interruptions in supply when distributors or vendors suffer damages or transportation is negatively affected; and
• increased costs if agricultural capacity is diminished or if insurance recoveries do not cover all of our losses.
If systemic or widespread adverse changes in climate or weather patterns occur, we could experience more of these losses, and such losses could have a
material adverse effect on our results of operations and financial condition.
Growth and Development Risks. We intend to grow both Qdoba and Jack in the Box by developing additional company-owned restaurants and through
new restaurant development by franchisees, both in existing markets and in new markets. Development involves substantial risks, including the risk of:
11