consistent with those made available to similarly situated restaurant companies. Our current DMA agreement expires in June 2012. We are currently negotiating with DMA and other
potential providers of distribution services for a new three-year agreement. We believe that a new agreement can be obtained with terms and conditions substantially similar to, if not more advantageous than our existing distribution agreement.
However, there can be no assurances that we will be successful in this respect. Additionally, in 2006 we entered into an agreement with the largest nationwide foodservice distributor of fresh produce in the United States to service most of our
restaurants and, where licensed, to distribute our proprietary handcrafted beer to our restaurants. This distributor currently delivers our proprietary handcrafted beer to approximately 60% of our restaurants. If our relationship with this
distributor were discontinued, we would pursue alternative distributors. However, it may take some time to enter into replacement distribution arrangements, and our costs for distribution may increase as a result.
During the past few years, the overall cost environment for food commodities in general has become extremely volatile primarily due to domestic and
worldwide agricultural, supply/demand and other macroeconomic factors that are outside of our control. Additionally, the availabilities and prices of food commodities can also be influenced by increased energy prices, animal-related diseases,
natural disasters, increased geo-political tensions, the relationship of the dollar to other currencies, consumer demand both domestically and worldwide, and other factors. Virtually all commodities purchased and used in the restaurant
industry, including proteins, grains, oils, dairy products, and energy have varying amounts of inherent price volatility associated with them. Additionally, during periods of rising costs for diesel fuel, our major distributors have the ability
under our agreements to pass along fuel surcharges to us that are triggered when their cost per gallon of diesel fuel exceeds a certain assumed level. While we attempt to manage these factors by offering a diversified menu and by attempting to
contract for our key commodities for extended periods of time whenever feasible and possible, there can be no assurance that we will be successful in this respect due to the many factors that are outside of our control.
The domestic restaurant
industry is highly competitive and generally considered to be mature. There are a substantial number of casual dining chain restaurants and other food and beverage service operations that compete both directly and indirectly with us in every
respect, including food quality and service, the price-value relationship, beer quality and selection, atmosphere, suitable sites for new restaurants and for qualified personnel to operate our restaurants, among other factors. We also compete within
each of our trade areas with national and regional restaurant chains and locally-owned restaurants. We also face growing competition as a result of the trend toward convergence in grocery, deli and restaurant services, particularly in the
supermarket industry which offers convenient meals in the form of improved entrées and side dishes.
Our restaurant concept
is a relatively small varied menu casual dining competitor when compared to the mature mass market chains, with approximately half of our restaurants currently located in one state California. Our overall brand
awareness and competitive presence in states outside of California is not as significant as that of our major casual dining chain competitors. Many competitors with similar concepts to ours have been in business longer than we have, have greater
consumer awareness, and often have substantially greater capital, marketing and human resources. Accordingly, we must be prepared to constantly evolve and refine the critical elements of our restaurant concept over time to protect our longer-term
competitiveness. Additionally, due to the continuing difficult operating environment for casual dining restaurants, coupled with continuing pressure on consumer spending for restaurant occasions, in general, we expect that our larger chain
restaurant competitors will continue to allocate even more resources to their national media advertising and discounting programs in order to protect their respective market shares, which could have an adverse effect on our sales and results of
The restaurant industry can be significantly affected by changes in consumer tastes and nutritional concerns, national, regional
or local economic conditions, demographic trends, traffic patterns, weather, and the type and number of competing restaurants. Changes in these factors could adversely affect us. In addition, other factors such as increased food, beverage, labor,
energy and other operating costs could adversely affect us. We believe,