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The Wendy's Company (US)

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Wendy's has traditionally ranked as the #3 fast food burger chain in the US. However, poor performance from long-time rival Burger King allowed Wendy's to move up into the #2 position in the US for a couple of years in the early 2010s. It was bounced back to third place during 2014. The brand has a comparatively low profile outside the North America, but has begun to spread its wings in recent years, returning to several international territories. Wendy's began to diversify its offering in the 1990s, bringing several other quick-service brands under its umbrella, including market-leading Canadian chain Tim Hortons. However, the group struggled to maintain the performance of the core Wendy's business after the death of founder Dave Thomas in 2002. As a result, Hortons was divested at the end of 2006 to allow the group to focus on burgers. Wendy's was acquired in 2008 by Triarc, then parent to the Arby's restaurant chain. Triarc changed its name to Wendy's Arby's Group, but Arby's too was sold during 2011 to allow the group to concentrate on the better-performing Wendy's. Following the deal, a new name was adopted of The Wendy's Company.

Advertising

Who handles advertising? Click here for Agency Account Assignments. Wendy's and its franchisees contribute 4% percentage of annual retail revenues to a shared fund which handles advertising. That suggested a total ad budget of around $395m in 2016. The company declared advertising expenditure of $41m in 2016.

Competitors

See Restaurant Sector for other companies

Brands & Activities

Wendy's specialises in "old-fashioned" hamburgers (with a highly distinctive square shape "because we don't cut corners") and fries, as well as chicken fillet sandwiches and nuggets, Frosty milkshakes and soft drinks. The company was one of the first fast feeders to present itself as a pioneer in healthy foods, and offers a range of freshly made Garden Sensations salads, baked potatoes and chili as well as burgers. In 2006 the company introduced a special breakfast menu for the first time, to compete with McDonald's, as well as Frescata deli sandwiches. It also said it would be using a different corn and soy oil in its deep-frying process that would eliminate most health-unfriendly trans fats from its breaded chicken and fries.

Wendy's has long positioned itself as being of superior quality to rival chains, and registered the slogan "Quality Is Our Recipe" as a trademark. Its burgers, for example, are made from fresh and never frozen ground beef. It launched a new marketing campaign to support this positioning in 2013 with the slogan "A Cut Above". The group has also tried hard to achieve a mix between traditional "down home" fare and more adventurous products aimed at a younger market (such as flatbread chicken sandwiches or waffle cone frosties). Menu innovations have become increasingly adventurous. The Pretzel Bacon Cheeseburger, introduced in 2013, was a huge success, driving a 3% increase in sales during that year.

Among the group's most prominent franchisees is Melinda Thomas, daughter of group founder Dave Thomas, and whose childhood nickname of Wendy gave the group its name. (She's also depicted in the chain's long-established logo). She and her siblings run around 30 outlets. WendPartners is the single biggest with 325 outlets, followed by Bridgeman Foods with 235. Cedar Enterprises, run by former Wendy's group president David Karam, owns more than 170 outlets. International Wendy's outlets are mostly in Latin America and Asia Pacific markets. Biggest markets by outlets are Puerto Rico, Indonesia, the Philippines and Venezuela. The group's sole European outlet, in the UK, closed in 2005.

For many years the company's founder, Dave Thomas, featured prominently in its advertising until his death in 2002. In the years that followed, the company struggled to find a satisfactory angle for its marketing. A new brand icon, "Mr Wendy", was introduced in 2004 but failed to curb an unexpected decline in sales towards the end of the year and was subsequently dropped. Instead, a new campaign was launched which appeared to poke fun at the chain's "pigtailed girl" brand icon, featuring a grown man in a red pigtail wig. Designed at least in part to emulate the ironic sense of humour which had restored Burger King's fortunes, the ads fell flat with customers, and especially with the Thomas family, not least his daughter. That campaign too was dropped at the end of 2007 in favour of a new approach emphasizing the quality of the chain's food. "Wendy" was herself reinvented in 2012 in the shape of redhead actress Morgan Smith Goodwin.

Gradually, Wendy's has rediscovered a sense of stability. Although it has continued to lose market share to larger competitor McDonald's it fared less badly than nearest rival Burger King in the early 2010s. In 2011, industry researcher Technomic estimated US systemwide sales of $8.5bn for Wendy's, putting it ahead of Burger King - on $8.4bn - for the first time ever. That gap narrowed significantly in 2012, with Wendy's at $8.60bn and Burger King rebounding to $8.59bn. Technomic put Burger King back in the lead for 2014.

By the end of 2016, the Wendy's system extended to around 6,537 outlets, including 5,740 in the US, 358 in Canada and another 439 elsewhere. It has been steadily selling company owned restaurants to franchisees, and by the end of 2016 only operated around 330 outlets directly, with all the rest run by franchisees, including all international sites. The group declared systemwide sales of $9.93bn for 2016, up 0.4%, including $420m from outlets outside North America. For 2015, Wendy's reported growth of 3.2% in total systemwide sales, but that figure slipped to 1.5% for 2016 as a result of a slowdown at franchised outlets. Company-owned outlets achieved same-store growth of 2.7%. Researcher NRN estimated Wendy's US systemwide sales at $9.06bn, compared to $9.33bn for Burger King (and $36.4bn for McDonald's). Sonic, the #4 chain in the limited service burger segment, had just $4.5bn.

Prior to its acquisition by Arby's, Wendy's parent company, known as Wendy's International also had investments in a small collection of other retail brands. The most significant of these was Canadian coffee and baked goods chain Tim Hortons. This was spun off in two installments during 2006, although around a third of the remaining Wendy's outlets in Canada are still jointly operated and co-branded with Tim Hortons. Investments in three other smaller businesses, Baja Fresh Mexican Grill, Cafe Express and Pasta Pomodoro, were also sold in 2006 and 2007. The Arby's chain was sold in 2011 for $130m. In 2015, the group also sold its inhouse bakery unit, which supplies North American stores with buns, to supplier East Balt Bakeries.

Financials

While McDonalds and Burger King struggled with flat or falling revenues in 2002 and 2003, Wendy's managed to buck that trend, but then suffered significantly from McDonald's strong recovery in 2004 and 2005, as well as improved performance at Burger King, and the negative effects of an attempted consumer fraud. Although company revenues rose 4% in 2005 to a record $3.8bn, same-store sales fell at Wendy's for the first time in 18 years. As a result of pressure from activist investor Nelson Peltz, the company announced a strategic review of the business during 2007, leading to speculation that it might be sold to private equity investors or even another restaurant group.

Following the spin-off of Hortons, Wendy's reported revenues for 2007 were almost $2.5bn, more or less unchanged on the previous year on a continuing basis, but net income continued to decline, falling just below $88m. In April 2008, after almost a year of discussions, Wendy's was acquired by rival restaurant group Triarc, for around $2.34bn. The merger was completed in September that year. Nelson Peltz was also the largest shareholder in Triarc, with a stake of around 10%.

Triarc already owned another fast-feeder, Arby's, resulting in a change of corporate name to Wendy's Arby's Group Inc. However, performance at that chain had been under pressure for several years, not least because of the high material cost of roast beef, which limited the chain's ability to offer discount meals. In 2011, Arby's was put up for sale. In June, private equity investor Roark Capital agreed to take control of the business for $130m in cash. Wendy's Arby's rebranded as The Wendy's Company.

Comparable revenues peaked in 2012 at $2.51bn, but have been declining since then because of the sale of outlets to franchisees. Revenues for 2014 fell 17% to $2.0bn, but operating profit almost doubled, and net income nearly tripled to $121m. A decline in topline to $1.87bn was offset by a further increase in earnings to $161m. For 2016, revenues slumped by another 23% to $1.44bn. Net income slipped back to $130m. Debt has been growing, reaching a new high of $2.5bn in 2016. Almost 90% of revenues were generated in the US, and essentially all of the rest in Canada.

Background

Wendy's is the youngest of the main US hamburger brands, launched in 1969, at a time when the country already had two established national chains in McDonald's and Burger King. Dave Thomas opened the first Wendy's Old-Fashioned Hamburgers restaurant in Columbus, Ohio. He had learnt his trade running a successful franchise operation for Kentucky Fried Chicken in that state since the early 1960s, and sold his share back to the company towards the end of the decade for a substantial sum. He positioned his new hamburger restaurant a little further upscale from his national rivals, with more lavish decoration and higher prices. The name was inspired by his daughter Melinda, nicknamed Wendy, and he used a likeness of her, with pigtails and red hair, as his logo.

Having opened other local outlets of his own, Thomas established a franchising operation in 1972. Unlike competitors, who franchised single outlets, Thomas offered his partners whole cities or regions, and this led to rapid growth of the brand. By 1976, there were 500 outlets across the country, including the first outside the US, in Canada. The company went public the same year, and the pace of expansion accelerated, with more than 1,500 new outlets opening over the next three years. He also diversified his menu. In 1979, Wendy's was the first quick-service restaurant to introduce a salad bar, followed by baked potatoes in 1983.

Dave Thomas retired from the day-to-day business of the company in 1982, and Wendy's soon found its share of the market begin to slide in the face of relentless competition from its bigger rivals. As a result, seven years later, Thomas was persuaded to make an appearance in a new TV commercial as Wendy's brand spokesman. The ad proved enormously popular with viewers. Sales rebounded and Thomas was firmly established as a mainstay of every campaign, appearing in more than 800 commercials over the next 13 years until his death in 2002. In 1995, Wendy's acquired coffee shop chain Tim Hortons, giving the company a strong foothold in the Canadian market. Later, it also acquired Mexican-themed Baja Fresh in California, as well as investments in two other regional US fast-casual chains, Cafe Express and Pasta Pomodoro.

The group was rocked by an damaging scandal in early 2005 when diner Anna Ayala claimed to have found part of a finger in a bowl of chilli served to her at a restaurant in California. Wendy's business in California was badly affected for almost a month, costing the group around $2.5m in lost sales, while police scientists conducted an investigation of the fingertip. The evidence eventually showed that the body part had not been cooked as part of the chilli, but had probably been added after it was served. The finger was later found to have been obtained by Ayala's husband from an acquaintance who lost it in an industrial accident. Ayala and her husband were arrested and charged with attempted larceny. Ayala later pleaded guilty and was sentenced to nine years in prison. Wendy's celebrated by giving out free Frosty milkshakes to all customers.

The group's senior management team underwent some upheaval in 2005 and 2006. Thomas Mueller, brand president and COO of Wendy's, resigned in 2005. As a result of pressure from activist investor Nelson Peltz, group chairman-CEO Jack Schuessler also resigned the following year and was replaced by finance chief Kerrii Anderson.

The group was acquired in 2008 by Triarc Companies, then the parent to the Arby's restaurant chain. Following the sale of Arby's three years later, the group adopted the new name The Wendy's Company.

Last full revision 14th July 2017

* Archive page for historical reference only. This profile is no longer being actively updated. See active page here *


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