Papa Johns 2005 Annual Report Download - page 8

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6
PJ Food Service, Inc. (“PJFS”), our wholly owned subsidiary that operates our domestic Company-
owned QC Centers, has a purchasing arrangement with BIBP Commodities, Inc. (“BIBP”), a third-party
entity formed by franchisees for the sole purpose of reducing cheese price volatility to domestic system-
wide restaurants. Under this arrangement, PJFS 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 QC
Centers via adjustments to the selling price over time. Ultimately, PJFS purchases cheese at a price
approximating the actual average market price, but with more predictability and less price volatility. See
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations –
Consolidation of BIBP Commodities, Inc. (“BIBP”) as a Variable Interest Entity, and “Note 5” of “Notes
to Consolidated Financial Statements” for additional information concerning BIBP and the purchasing
arrangement, and the related financial statement treatment thereof.
Marketing Programs
All Company-owned and franchised Papa John’s restaurants within a co-developed market are required
to join an area advertising cooperative (“Co-op”). Each member restaurant contributes a percentage of
sales to the Co-op for market-wide programs, such as radio, television and print advertising. The rate of
contribution and uses of the monies collected are determined by a majority vote of the Co-op’s members.
The restaurant-level and Co-op marketing efforts are supported by print and electronic advertising
materials that are produced by the Papa John’s Marketing Fund, Inc., a non-profit corporation (the
“Marketing Fund”). The Marketing Fund produces and buys air time for Papa John’s national television
commercials, in addition to other brand-building activities, such as consumer research and public
relations activities. All domestic Company-owned and franchised Papa John’s restaurants are required to
contribute a certain percentage of sales to the Marketing Fund. The contribution rate to the Marketing
Fund can be increased above the required contribution rate if a majority of the domestic restaurants agree
to such increase. The contribution percentage was 2.25% during 2005, 3.25% for the period June through
December 2004, and 2.0% from January through May 2004 and throughout 2003. Effective at the
beginning of fiscal 2006, the contribution percentage to the Marketing Fund increased to 2.6% and is
expected to remain at that level throughout 2006.
Restaurant-level marketing programs target the delivery area of each restaurant, making extensive use of
targeted print materials in direct mail and store-to-door couponing. The local marketing efforts also
include a variety of community-oriented activities with schools, sports teams and other organizations. In
markets in which Papa John’s has a significant presence, local marketing efforts are supplemented with
radio and television advertising.
We provide both Company-owned and franchised restaurants with pre-approved print marketing
materials and with catalogs for the purchase of uniforms and promotional items. We also provide direct
marketing services to Company-owned and franchised restaurants using customer information gathered
by our proprietary point-of-sale technology (see Company Operations – Point of Sale Technology).
We have developed a system by which all domestic Papa John’s restaurant customers are able to place
orders online via the internet, including a new “plan ahead ordering” advance ordering feature. We
receive a percentage fee based on online sales from domestic franchisees, in addition to royalties, for this
service.
We offer our customers the opportunity to purchase a reloadable gift card, (“Papa Card”) that can be
purchased in any denomination from $10 to $100. We also offer Papa Cards for sale to consumers in
limited third party outlets and continue to explore additional Papa Card distribution opportunities. The
Papa Card may be redeemed for delivery, carryout and online orders and is accepted at substantially all
Papa John’s traditional U.S. restaurants.