Advanced Financial - Wendy's Case

Wendy’s Case

Applied Financial Management (ACC 519)

September 18, 2014

In November 1969 the first Wendy’s opened its doors and less than three years later there were seven open as well as two that were franchised. By 1978 there were 1,119 franchised restaurants and 288 company restaurants. There was consistency when it came to company and franchised restaurants from the interior to exterior of the units. They were built on similar square footage sites, built to company specifications, from parking lot capacity to customer seating, and had a drive through. The location was also key due to the fact that volume of customers defined success.

The technical assistance fees that were required to be paid by franchise owners “prior to the opening of each restaurant” played a crucial role in Wendy’s success and rapid growth. Although these fees were not a large source of profit for the company, they were the foundation of the enterprise. The franchisee pays a royalty of 4% of its gross sales to Wendy’s monthly. This meant that the services it offered to the franchisees allowed Wendy’s to maintain quality control, strengthen its brand, and increase revenue from royalties while still empowering its franchise owners.

Another factor that led to its initial success was that “Wendy’s did not select or employ any personnel for franchisees, nor did the company sell fixtures, food, or supplies of any kind to franchisees.” This forced the franchise owners to devote sweat equity in order to achieve success, and it provided a reasonable amount of pressure on them to establish supply chains and take ownership in the franchise. Just because a franchisee had a freestanding unit did not in any way imply its success without him or her taking the necessary steps required. Wendy’s did not own the franchised units and required the franchisees to either own it themselves or lease it from a third party. This reduced the risk on the part of Wendy’s and further contributed to giving the franchisee a sense of ownership and responsibility.

Wendy’s strategy was based on product differentiation, market segmentation, quality food, quick service, and at reasonable prices. The goal of the company was to provide customers with bigger and better hamburgers that were reasonably priced, customized and also served quickly. Unlike its competitors, Wendy’s chose a market that was believed to be a different market - the target market consisted of adults and young adults. Additionally, Wendy’s chose to have only four main products, which included hamburgers, French fries, chili and Wendy’s Frost Dairy Dessert. Despite that, they were able to offer 265 different hamburger combinations. Further, Wendy’s competitive advantage was from the fact that they served uniquely shaped hamburgers that were made from fresh beef, cooked to the specifications of each customers order, and served directly from the grill “hot and juicy”.