FDD Talk 2016: The Wendy’s Franchise Opportunity (Financial Performance Analysis, Estimated Costs, and Other Important Stuff You Need to Know)

In this FDD Talk 2016 post, you’ll learn the following:

• Section I – Background information on the Wendy’s franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Wendy’s franchise, based on Item 7 of the company’s 2016 FDD

• Section III – Presentation and analysis of Wendy’s financial performance representations, based on Item 19 of the company’s 2016 FDD, including information on the:

• 2015 average, high, and low annual sales volume for the 525 company-owned and 4,554 franchised Wendy’s Restaurants (separately stated) that were open as of the end of the company’s 2015 fiscal year

• average weekly net sales before and after Image Activation Remodels completed in 2014 and 2015 for company-owned and franchised Wendy’s Restaurants (separately stated)

Section I – Background Information

Wendy’s Trying Out Self-Service Kiosks to Offset Rising Wages

As higher minimum wages take effect in a number of states around the country, Wendy’s is among quick-service restaurants that are looking at technology to offset growing payroll costs.

Wendy’s is offering self-service order kiosks to some franchisees, and in 2015 it announced 90° Labs, a technology and innovation center designed to “develop differentiating, interactive digital experiences for our customers, employees and franchise system.”

Automation isn’t being driven specifically because of the current push toward higher minimum wages. Employment experts have long been charting how automation will affect jobs, and many automatic processes already do work that human workers used to do. But increases in minimum wages are causing some companies to look more closely at automating some of the duties of staff members.

Wendy’s Continues to Shed Corporate Locations

The company continues to turn over company-owned locations to franchisees on the way to its goal of reducing its corporate share to 5 percent. At the end of 2012, Wendy’s owned more than 1,400 restaurants (23 percent), but shed 825 locations in 2012 through 2015 to well-capitalized franchisees. At the beginning of 2016, the company owned about 600 locations and planned to sell 315 during the year.

Third-Largest Burger Chain

Dave Thomas founded Wendy’s in 1969 in Columbus, Ohio, using his daughter Wendy as both the name of the company and its mascot.

With more than 6,500 locations in the U.S. and around the world, Wendy’s is the third-largest hamburger fast-food chain in the world, behind No. 1 McDonald’s and No. 2 Burger King. It’s now based in Dublin, Ohio, and is overseen by The Wendy’s Company, which is also part-owner of Arby’s.

Chain to Enter Brazil

Wendy’s announced plans to enter Brazil in June 2016 with plans for two restaurants in São Paulo, Brazil’s largest city. The expansion will be driven by Wendy’s Brazil, a joint partnership between international restaurant franchisee Infinity Services and U.S. Wendy’s franchisee Starboard. Starboard has more than 180 locations.

Penegor Takes Over as CEO

Todd Penegor became CEO of Wendy’s in May 2016 and will retain his office as president as well. Retiring CEO Emil Brolick will continue to serve on the board, which Penegor will join.

Penegor became chief financial officer in 2013; Gunther Plosch took over as CFO in May 2016. Plosch was formerly vice president of global business services for the Kellogg Company and, previously, vice president and CFO for Kellogg North America.

Wendy’s Packs Protein, Veggies and Fiber Into Powerful New Salad

Added to the permanent menu in May 2016, the Power Mediterranean Chicken Salad features hand-chopped lettuce, red onions, grape tomatoes, grilled marinated chicken and crumbled feta cheese, along with a sun-dried tomato grain blend of quinoa, chickpeas, white-beans, fire-roasted vegetables and sun-dried tomatoes.

A drizzle of creamy hummus tops off the salad, which in 450 calories packs a full day’s recommendation for vegetables, 80 percent of recommended protein, and a third of recommended fiber. Adding the recommended light balsamic vinaigrette brings the calorie count to 540.

LTO Offerings Include Fresh Blackberries, Ghost Peppers, and More

Among the limited-time offerings at Wendy’s in 2016 was the Summer Berry Chicken Salad in June 2016, which delivered fresh blackberries at their peak, along with strawberries, creamy feta cheese, apple chips and a blackberry vinaigrette. The salad was the culmination of two years of sourcing fresh blackberries through qualified blackberry growers.

Also on the 2016 LTO menu:

• The Jalapeño Fresco Spicy Chicken Sandwich, which were offered in April 2016, had 10 different sources of heat: red pepper, chili pepper, jalapeño, paprika, black pepper, cayenne, capsicum, habanero, red jalapeño and ghost pepper.

• Ghost Pepper Fries, introduced with the Jalapeño Fresco Spicy Chicken Sandwich, featured fries covered with a cheese sauce, diced fresh jalapeños, shredded cheddar and a ghost pepper sauce.

• The Bacon Mozzarella Burger in May 2016 brought together beef, thick-sliced bacon and melted mozzarella cheese, topped with sliced red onions and a garlic parmesan cheese spread.

Wendy’s Begins Transition to Cage-Free Eggs

Wendy’s announced in January 2016 that it would transition to 100 percent cage-free eggs in U.S. and Canadian restaurants by 2020. Part of the chain’s animal welfare program that began in the late 1990s, this will affect the more than 400 Wendy’s locations in those markets that serve breakfast.

Credit-Card Breach Affected More Than 1,000 Wendy’s Locations

A malware-driven credit-card breach in 2015 impacted at least 1,025 Wendy’s restaurants. Wendy’s began investigating unusual credit-card activity in February 2016 and confirmed malware on some restaurants’ point-of-sale systems in May. Additional malicious cyber activity was found at other restaurants in June.

The company says malware has been disabled at all locations where it has been discovered. A company web page outlines which locations were hit.

Section II – Estimated Costs

• Please click here for detailed estimates of Wendy’s franchise costs, based on Item 7 of the company’s 2016 FDD (updated).

Section III – Financial Performance Representations (Item 19, 2016 FDD) and Analysis