Papa Johns 2001 Annual Report Download - page 10

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During the past several years, an increasing number of freestanding restaurants have been opened in the
Papa John’s system. We seek either existing buildings suitable for conversion, or locations suitable for the
construction of our prototype restaurant. Freestanding buildings generally provide more signage and
better visibility, accessibility and parking. We believe that these locations improve Papa John’s image
and brand awareness. At year-end, freestanding units represented approximately 23% of domestic
Company-owned restaurants. We expect this ratio to remain fairly constant in future years. We also own
11 multi-bay units (where we lease excess space to third party tenants); we do not expect to significantly
increase the number of these units.
All of the equipment, fixtures and smallwares needed to open a Papa John’s restaurant are available for
purchase through us. We also provide layout and design services and recommendations for
subcontractors, signage installers and telephone systems to Papa John’s franchisees. Although not
required to do so, substantially all Papa John’s franchisees purchase most of their equipment from us.
Quality Control Centers; Strategic Supply Chain Management
Our domestic QC Centers, comprised of eleven regional production and distribution centers, supply pizza
dough, food products, paper products, smallwares and cleaning supplies twice weekly to each restaurant.
This system enables us to monitor and control product quality and consistency, while lowering food costs.
Our full-service QC Centers are located in Louisville, Kentucky; Dallas, Texas; Pittsburgh, Pennsylvania;
Orlando, Florida; Raleigh, North Carolina; Jackson, Mississippi; Denver, Colorado; Rotterdam, New
York; Portland, Oregon, Des Moines, Iowa; and Phoenix, Arizona. The QC Center system capacity is
continually evaluated in relation to planned restaurant growth, and facilities are developed or upgraded as
operational or economic conditions warrant.
We owned a full-service international QC Center in Cambridge, Canada that closed in the fourth quarter
of 2001 due to franchise restaurant closings and a reduced development outlook in its service area. Our
subsidiary, Papa John’s UK, owns a distribution center in the United Kingdom that will be converted to a
full-service commissary during late 2002. The primary difference between a full-service QC Center and a
distribution center is that full-service QC Centers produce fresh pizza dough in addition to providing
other food and paper products used in our restaurants. International full-service QC Centers, licensed to
franchisees, are located in Canada, Mexico, Honduras, Saudi Arabia, Alaska, Puerto Rico, Costa Rica,
Venezuela, and Guatemala. We expect future international QC Centers to be licensed to franchisees;
however, we may open Company-owned QC Centers at our discretion. We also have the right to acquire
licensed QC Centers from our international licensees in certain circumstances.
We set quality standards for all products used in our restaurants and designate approved outside suppliers
of food and paper products that meet our quality standards. In order to ensure product quality and
consistency, all of our restaurants are required to purchase proprietary spice mix and dough from our QC
Centers. Franchisees may purchase other goods directly from our QC Centers or approved suppliers.
National purchasing agreements with most of our suppliers generally result in volume discounts to us,
allowing us to sell products to our restaurants at prices that we believe are below those generally available
in the marketplace. Within our domestic QC Center system, products are distributed to restaurants by
refrigerated trucks leased and operated by us or transported by a dedicated logistics company.
PJ Food Service, our wholly-owned subsidiary that operates our domestic Company-owned QC Centers,
has a purchasing arrangement with a third-party entity formed at the direction of the Franchise Advisory
Council (see Franchise Program – Franchise Advisory Council) for the sole purpose of reducing cheese
price volatility. Under this arrangement, PJ Food Service purchases cheese at a fixed quarterly price
based in part on historical average cheese prices. Gains and losses incurred by the selling entity are
passed to the commissary via adjustments to the selling price over time. Ultimately PJ Food Service
purchases cheese at a price approximating the actual average market price, but with more predictability