FDD Talk: 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 2019 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 2019 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 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD

• Section V – Presentation and analysis of Wendy’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:

• 2018 average, median, high, and low gross sales for the 332 company-owned and 5,232 franchised Wendy’s Restaurants that were open and in continuous operation for at least 52 weeks as of December 30, 2018

• 2018 average, median, high, and low gross sales, cost of sales, gross profit, other operating expenses, rent, and restaurant EBITDA for the 320 traditional company-owned Wendy’s Restaurants that were open and in continuous operation for at least 52 weeks as of December 30, 2018

Section I – Background Information

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

Looking to Advance Sustainable Packaging

1.  In late February 2019, Wendy’s announced a commitment to advance sustainable packaging solutions in the food service industry and its own operations through its partnership with the NextGen Consortium. The NextGen Consortium is a multi-year partnership of food service industry leaders convened by Closed Loop Partners’ Center for the Circular Economy. Wendy’s joins the Consortium as a Supporting Partner, alongside other industry leaders, to address single-use food packaging waste.

2.  Liliana Esposito, Wendy’s chief communications officer, said, “At Wendy’s, we know that our customers are increasingly aware of packaging waste and its impact on the environment, and they’re already doing their part to be more conscious about their product use and recycling habits. Our Squarely Sustainable approach is the next step for Wendy’s – embracing our role as part of the solution.”

3.  Esposito added, “By sharing goals and regular updates, we’ll outline areas where we need to drive progress and hold ourselves accountable to our commitments. One commitment is to engage in partnerships that help us arrive at smart solutions, like our new partnership with the NextGen Consortium.”

4.  Squarely Sustainable, a nod to the Wendy’s brand’s signature square hamburgers, is the company’s four-pronged approach to sustainability:

• Use Less and reduce unnecessary materials use;
• Use Better and seek certified sustainable materials where possible;
• Spark Action by identifying consumer-facing actions that can drive change; and
• Engage Partners to work with others to find solutions on important issues.

5.  With its packaging, Wendy’s has focused on eliminating certain materials of concern and removing unnecessary paper and plastic waste. For instance, Wendy’s eliminated Styrofoam from restaurants in 2012. And more recently, Wendy’s reduced fiber and plastic in several packaging formats, including fry cartons, straws, and bags, reducing by several million pounds the amount of paper and plastic materials used in these items.

6.  Yet, with a growing need to identify environmentally-sustainable solutions and a lack of broadly available alternatives to single-use plastic and paper, Wendy’s is eager to engage with the NextGen Consortium to accelerate progress.

Partners with GasBuddy

7.  In mid-May 2019, Wendy’s became the first to partner with GasBuddy, the only smartphone app connecting drivers to their Perfect Pit Stop, to launch the fuel app’s latest feature, Badges, enabling brands to get their message in front of drivers deciding where to stop. The new GasBuddy Badges feature utilizes GPS-based, first-party data to connect GasBuddies to Wendy’s locations attached to or within immediate proximity of gas stations.

8.  Gas station convenience stores continue to put emphasis on food services, providing more options that compete with QSRs and fast-casual restaurants. Food services now make up nearly 23% of sales at c-stores nationwide.

9.  Jimmy Bennett, senior director of media and social for Wendy’s, said, “Consumers have more choice than ever as to where to get a meal. GasBuddy provides us a unique way to reach millions of drivers during the planning portion of their trips to keep Wendy’s top-of-mind in a seamless and relevant way.”

10.  Jordan Grossman, EVP of advertising sales for GasBuddy, said, “Gas stations are turning into destinations for meals and blurring the lines into being actual restaurants. The new Badges feature provides our partners with an effective way to position their brand to drivers with high intent to stop and purchase. Our research found we’re all craving convenience. When filling up the car, we want to know if we can get a snack, a full meal or even a nearby hotel to stay the night. We’re excited to work with Wendy’s as our launch partner, and look forward to rolling this out to more brand advertisers.”

Releases New Line of Chicken Sandwiches

11.  At the end of April 2019, Wendy’s introduced the Made to Crave menu – a sandwich line dedicated to unlocking a whole new world of flavors.  Three new chicken sandwiches were added to Wendy’s chicken menu: Avocado BLT, S’Awesome Bacon Chicken, and Barbecue Chicken.

12.  The Made to Crave Chicken lineup features each of Wendy’s different fillets, such as the lightly breaded and specially-seasoned Homestyle, grilled, and spicy. Each sandwich is made with all-white-meat chicken with no artificial flavors, preservatives, or colors from artificial sources.

13.  Kurt Kane, Wendy’s executive vice president, chief concept and marketing officer, said, “After seeing the customer response to our Made to Crave Hamburger lineup, we knew we had to continue the excitement and flavor creativity with chicken. So why settle for basic when you can satisfy your cravings with any undeniably good, every day flavor from our lineup of new Made to Crave Chicken sandwiches.”

14.  In 2017, Wendy’s made a significant investment in chicken quality which resulted in more tender, juicy, and consistently delicious chicken. Building on that, the Avocado BLT, S’Awesome Bacon Chicken, and Barbecue Chicken sandwiches are individually crafted and feature bold flavors. The new sandwiches feature the following:

• Avocado BLT: Wendy’s introduced a creamy, fresh, and crunchy take on the classic BLT. Made with a grilled chicken fillet, a slice of melted muenster cheese, three strips of Applewood-smoked bacon, crisp lettuce, greenhouse-grown tomatoes, creamy avocado, lathered in a buttermilk ranch sauce, all in between a warm and fluffy premium bun.

• S’Awesome Bacon Chicken: Reminiscent of its burger counterpart, this sandwich brings those familiar flavors you love to satisfy that chicken craving within. Made with a lightly-breaded and specially-seasoned Homestyle chicken fillet, a slice of melted muenster cheese, three strips of sizzling Applewood-smoked bacon, iceberg lettuce, greenhouse-grown tomatoes, and of course, Wendy’s Side of S’Awesome sauce, all in between a warm and fluffy premium bun.

• Barbecue Chicken: Wendy’s has long understood what makes barbecue taste so great, and now, those barbecue flavors have made their way to chicken. The sandwich is complete with a slice of melted muenster cheese, crispy fried onions, three juicy pickles, and a spicy chicken fillet to crank that temperature up a notch. To top it off, it’s smothered in a sweet and smoky Kansas City-style barbecue sauce that delivers familiar and comforting flavors, making it a top-contender for craveability.

Company History

15.  Wendy’s was founded in 1969 by Dave Thomas in Columbus, Ohio. Thomas was inspired to open a restaurant that offered “old fashioned” hamburgers by his frequent trips to Kewpee Hamburgers in his home town of Kalamazoo, Michigan. Kewpee sold square hamburgers and thick malt shakes, both of which became the signature items of Wendy’s.

16.  Another Wendy’s icon, its logo of a little red-headed girl, was also inspired by Thomas’ real life. The restaurant was named after his fourth child, Melinda Lou “Wendy” Thomas, who happened to be a young freckle-faced girl with red braids.

17.  In 1970, Thomas opened a second Wendy’s, which featured a quick-service restaurant industry innovation, a pick-up window with its own grill. As Wendy’s continued to be a success, Thomas began franchising the Wendy’s concept in 1972. That same year, the company aired its first local TV commercials. Wendy’s growth continued at a quick pace throughout the 1970s and by the end of the decade, the brand celebrated the opening of its 1,000th location.

18.  Over the next few decades, Wendy’s continued to expand both across the United States and internationally. Additionally, the brand added new items to its menu, including baked potato and Super Value Menu, which featured nine quality items available for 99¢ each everyday.

19.  By the early 1990s, Wendy’s opened its 4,000th store. Around this same time, the company founded the Dave Thomas Foundation for Adoption. In the mid-1990s, Wendy’s merged with Tim Hortons, a Canadian baked goods and coffee chain. The merger would last until 2006, when Wendy’s successfully spun off Tim Hortons as a separate public company.

20.  Wendy’s continued its success and growth in the early 2000s and in 2008, Wendy’s and Arby’s merged to form a new company called The Wendy’s/Arby’s Group, Inc., which is now The Wendy’s Company. Like the merger with Tim Hortons, the Wendy’s/Arby’s merger did not last very long – The Wendy’s Company divested itself of Arby’s in 2011.

21.  In 2010, Wendy’s introduced its new natural-cut French fries with sea salt in the U.S., marking the first complete redesign of the company’s classic fries. Two years later, Wendy’s started its brand transformation, which set out to modernize the brand and improve the customer experience. Key initiatives included bold new restaurant designs, product innovation, and engaging advertising and digital media.

22.  In 2013, as part of the brand’s renovation, Wendy’s redesigned its logo with a more contemporary feel. Since then, Wendy’s has continued to grow around the world and innovate its menu.

Entrepreneur’s Franchise 500

23.  Wendy’s did not rank on Entrepreneur’s 2020 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 2019 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 2019 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

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

2018

• Outlets at the Start of the Year:  5,432
• Outlets at the End of the Year:  5,457
• Net Change:  +25

Company-Owned

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

2018

• Outlets at the Start of the Year:  337
• Outlets at the End of the Year:  353
• Net Change:  +16

Section V – Financial Performance Representations (Item 19, 2019 FDD) and Analysis

Part 1 – U.S. Average Gross Sales for the Period January 1, 2018 to December 30, 2018 (Fiscal Year 2018)

• As of the end of fiscal year 2018 (January 1, 2018 to December 30, 2018), there were 353 domestic Wendy’s Company Restaurants, and 5,457 domestic Wendy’s Restaurants owned by Wendy’s franchisees (“Franchised Restaurants”).

• The table below provides the average gross sales and related information for the domestic Wendy’s Company Restaurants and Franchised Restaurants that were open and in continuous operation for at least 52 weeks as of December 30, 2018.

Company Restaurants