FDD Talk 2018: Wendy’s Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk 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 2018 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Wendy’s franchise, based on Items 5 and 6 of the company’s 2018 FDD

• Section IV – Number of franchised and company-owned Wendy’s outlets at the start of the year and the end of the year for 2015, 2016, and 2017, based on Item 20 of the company’s 2018 FDD

• Section V – Presentation and analysis of Wendy’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:

• 2017 average, median, high, and low gross sales for the 310 company-owned and 5,085 franchised Wendy’s Restaurants that were open and in continuous operation for at least 52 weeks as of December 31, 2017

• 2017 average, median, high, and low gross sales, cost of sales, gross profit, other operating expenses, rent, and restaurant EBITDA for the 300 traditional company-owned Wendy’s Restaurants that were open and in continuous operation for at least 52 weeks as of December 31, 2017

Section I – Background Information

13 Things You Need to Know About the Wendy’s Franchise

Sells Ownership Interest in Inspire Brands to Focus on Future Growth

1.  In early August 2018, Wendy’s announced that it had accepted an offer from Inspire Brands (owner of Arby’s, Buffalo Wild Wings, and R Taco) to sell its 12.3% ownership interest in the company back to Inspire Brands for $450 million. The agreement was approved by Wendy’s board of directors and represents a 38% premium on Wendy’s previous valuation of the investment.

2.  According to Todd Penegor, president and chief executive officer of Wendy’s, “We have benefited from and enjoyed our partnership with Inspire, and we wish Paul Brown and the team continued success in the future. The opportunity to monetize our investment in Inspire Brands will allow us to invest in future growth for the Wendy’s brand and Company, which is our top priority. The flexibility provided by the sale proceeds and the additional share repurchase authorization through 2019 will also allow us to continue to create value for our shareholders.”

Commits to Source Vine-Ripened, Greenhouse-Grown Fresh Tomatoes

3.  At the beginning of June 2018, Wendy’s announced a new initiative to source vine-ripened tomatoes for its North American restaurants exclusively from greenhouse farms — a first in the QSR industry — by early 2019. The transition is ongoing and new tomatoes will be available at Wendy’s U.S. and Canada locations between now and early 2019. The move is part of the company’s ongoing commitment to sourcing the freshest, highest-quality produce for its hamburgers, salads, and sandwiches.

4.  According to a press release, tomatoes for Wendy’s will be grown in indoor greenhouse and hydroponic farms from approximately a dozen suppliers throughout North America, including the West Coast, Pacific Northwest, Southeast, and Great Lakes regions of the United States; Eastern and Western Canada; and Mexico. Nearly all tomatoes will be sourced from the United States and Canada, giving Wendy’s customers the benefit of fresh, great-tasting tomatoes from sources that match the brand’s North American restaurant footprint.

5.  Liliana Esposito, Wendy’s chief communications officer, said, “We’ve always been committed to providing customers with fresh, high-quality food. From our fresh, never-frozen beef, to creating the first salad bar in the QSR space, to hand-chopping produce in our restaurants daily, this newest initiative to source vine-ripened tomatoes from greenhouse farms is the latest way we’re delivering on that commitment.”

Unveils New Innovative Restaurant Design

6.  Around early May 2018, Wendy’s opened one of its newest restaurants in Gluckstadt, Michigan, which features the brand’s new “Smart 55” building design. Wendy’s Smart 55 design has a smaller footprint than a traditional Wendy’s restaurant.

7.  The restaurant uses innovative interior and exterior design elements to reinvent the Wendy’s restaurant environment and experience. In addition to an open kitchen design, which provides guests a unique inside look at their food as it is being prepared, the dining area features a large variety of mixed-use seating types.

8.  Brian McDaniel, SVP of operations for Carlisle, a franchisee of the Wendy’s Company, said, “We are incredibly excited and proud of our new restaurant in Gluckstadt, and we think our guests will love the new design. In addition to this new restaurant, we have been very actively updating our existing restaurants throughout the state. Building new restaurants and remodeling existing ones is part of our multi-year strategy to reinvest in our local communities and provide a better quick service experience.”

Company History

9.  Wendy’s was founded in November 1969 by Dave Thomas in Columbus, Ohio. Thomas was inspired to start his own burger place after frequent visits to Kewpee Hamburgers in his hometown of Kalamazoo, Michigan. While Wendy’s has become famous for its square hamburgers and the Frosty, Thomas borrowed these ideas directly from Kewpee Hamburgers, which sold square burgers and thick malt shakes. The brand has continued to stick with square burgers because Thomas believed it allows customers to see the quality of the meat better and that it represents a brand that refuses to cut corners.

10.  In addition to its signature food items, Wendy’s is known for its iconic mascot, a little red-headed girl named Wendy. Thomas named his restaurant after his fourth child, Melinda Lou “Wendy” Thomas, and pictures of her as a child were displayed at the very first Wendy’s restaurant.

11.  Within a few short years, Thomas started franchising the Wendy’s concept and the first franchised location opened in Indianapolis, Indiana. Wendy’s grew rapidly throughout the rest of the 1970s and achieved several milestones, including opening the first international location in Canada, airing the brand’s first national television campaign, and opening 1,000 Wendy’s restaurants by the end of the decade. The brand’s massive expansion continued over the next few decades and by the time Wendy’s celebrated its 40th anniversary in 2009, there were over 6,600 Wendy’s locations worldwide.

12.  In recent years, Wendy’s has undergone a brand transformation that has brought the brand into the modern era. Key initiatives have included new restaurant designs, product innovation, and engaging advertising and digital media. Wendy’s also unveiled a new contemporary logo in 2013. Today, Wendy’s continues to grow around the world, create new and innovate products, and stay relevant by tapping into social media marketing.

Entrepreneur’s Franchise 500

13.  Wendy’s did not rank on Entrepreneur’s 2018 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Wendy’s franchise costs, based on Item 7 of the company’s 2018 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Wendy’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2018 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2015

• Outlets at the Start of the Year:  4,895
• Outlets at the End of the Year:  5,090
• Net Change:  +195

2016

• Outlets at the Start of the Year:  5,090
• Outlets at the End of the Year:  5,409
• Net Change:  +319

2017

• Outlets at the Start of the Year:  5,409
• Outlets at the End of the Year:  5,432
• Net Change:  +23

Company-Owned

2015

• Outlets at the Start of the Year:  855
• Outlets at the End of the Year:  632
• Net Change:  -223

2016

• Outlets at the Start of the Year:  632
• Outlets at the End of the Year:  330
• Net Change:  -302

2017

• Outlets at the Start of the Year:  330
• Outlets at the End of the Year:  337
• Net Change:  +7

Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis

Part 1 – U.S. Average Gross Sales (for the Period January 2, 2017 to December 31, 2017 – Fiscal Year 2017)

• As of the end of fiscal year 2017 (January 2, 2017 to December 31, 2017), there were 337 domestic Wendy’s Old Fashioned Hamburgers Restaurants owned by one or more affiliates of Quality (the franchisor) (“Company Restaurants”), and 5,432 domestic Wendy’s Old Fashioned Hamburgers Restaurants owned by Wendy’s franchisees (“Franchised Restaurants”).

• In counting the Wendy’s Restaurants for Item 19, Quality only includes Restaurants which had at least 52 weeks of consecutive sales within the past 12 months. In Parts 1 and 2, 27 Company Restaurants and 347 Franchised Restaurants are excluded as they had less than 52 consecutive weeks of sales.

• Of these Restaurants, during fiscal year 2017, there were 4 Restaurants owned by one or more affiliates of Quality that closed permanently and 57 Restaurants owned by Wendy’s franchisees that closed permanently. No Restaurants closed after being open less than twelve months.

• Further, the Restaurant count in Part 1 reflects ownership as of fiscal year-end 2017 and includes both traditional and non-traditional locations. Part 2 does not include financial information from non-traditional restaurants, and as a result 10 Company Restaurants operating at non-traditional locations are not represented.

Company Restaurants