Papa Johns 2012 Annual Report Download - page 13

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North America Development and Franchise Agreements. We enter into development agreements with our
franchisees in North America for the opening of a specified number of restaurants within a defined period
of time and specified geographic area. Substantially all existing franchise agreements have an initial 10-
year term with a 10-year renewal option. We have the right to terminate a franchise agreement for a
variety of reasons, including a franchisee’s failure to make payments when due or failure to adhere to our
policies and standards. Many state franchise laws limit the ability of a franchisor to terminate or refuse to
renew a franchise.
We provide assistance to Papa John’s franchisees in selecting sites, developing restaurants and evaluating
the physical specifications for typical restaurants. We provide layout and design services and
recommendations for subcontractors, signage installers and telephone systems to Papa John’s franchisees.
Our franchisees can purchase complete new store equipment packages through an approved third-party
supplier. In addition, we sell replacement smallwares and related items to our franchisees. Each
franchisee is responsible for selecting the location for its restaurants but must obtain our approval of
restaurant design and location based on accessibility and visibility of the site and targeted demographic
factors, including population density, income, age and traffic.
Under our standard domestic development agreement, the franchisee is required to pay, at the time of
signing the agreement, a non-refundable fee of $25,000 for the first restaurant and $5,000 for any
additional restaurants. The non-refundable fee is credited against the standard $25,000 franchise fee
payable to us upon signing the franchise agreement for a specific location. Generally, a franchise
agreement is executed when a franchisee secures a location. Our current standard development agreement
requires the franchisee to pay a royalty fee of 5% of sales and the majority of our existing franchised
restaurants also have a 5% royalty rate in effect.
Domestic Franchise Development Incentives. Over the past few years, we have offered various
development incentive programs for domestic franchisees to increase unit openings. Such incentives
included the following for 2012 traditional openings: (1) no franchise fee (standard fee is $25,000); (2)
the waiver of some or all of the 5% royalty fee for a limited period of time, not to exceed 18 months; (3) a
credit for the portion of the purchase of certain equipment; and (4) a credit to be applied toward a future
food purchase, under certain circumstances. Our 2013 incentives will be similar to those offered in 2012.
We believe the development incentive programs have accelerated unit openings and expect they will
continue to do so in 2013.
Marketing Fund Incentives. In 2012, domestic franchisees could earn up to a 45 basis point royalty rebate
(against our standard 5.0% royalty rate) by meeting certain sales growth targets in consideration for
agreeing to set the marketing fund rate over a multi-year period. The royalty rebate incentives will
continue throughout 2013.
Domestic Franchise Support Initiatives. From time to time, we offer additional discretionary support
initiatives to our domestic franchisees, including:
 Food cost relief by lowering the commissary margin on certain commodities sold by PJ Food
Service, Inc. (“PJFS”) to the franchise system and by providing incentive rebate opportunities;
 Targeted royalty relief and local marketing support to assist certain identified franchisees or
markets; and
 Restaurant opening incentives.
In 2013, we plan to continue domestic franchise support initiatives. We believe the support programs
have mitigated potential unit closures and strengthened our brand.