Case #5 Wendy's

Wendy’s International - 2007

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Submitted by: Pauline Mae L. Naranjo Submitted to: Prof. Rose Lacerona MW / 10:30 a.m. – 12:00 n.n / Case Analysis #5 / 08-28-2013

HOME 4/30/2012

Wendy’s International 2007 Case Analysis

TIME CONTEXT  1969: Dave Thomas opens the first Wendy's restaurant in downtown Columbus, Ohio  1972: Wendy's franchising begins.  1975: First international restaurant opens in Canada.  1976: Wendy's International, Inc. goes public  1977: Company begins national television advertising.  1978: The 1,000th Wendy's opens in Springfield, Tennessee.  1979: Salad bars are added to Wendy's restaurants.  1981: Thomas makes his first appearance as Wendy's advertising spokesperson.  1984: Famous and award-winning "Where's the Beef?" ad campaign is run.  1986: James W. Near becomes president and COO and launches a major reorganization.  1989: Thomas begins another stint as advertising spokesperson; the Super Value Menu debuts.  1995: Wendy's International acquires Tim Horton's, a Canadian coffee and baked goods chain.  1997: The 5,000th Wendy's restaurant opens in Columbus, Ohio.  2002: Dave Thomas dies; Wendy's International acquires a 45 percent stake in Café Express.  2002: Wendy’s Acquires Baja Fresh  2004: 35th Anniversary of Wendy's  2006: Wendy’s Spins off Tim Horton’ and Sells Baja Fresh.

SUMMARY OF THE CASE Wendy’s operates internationally with a combination of company-owned and franchised restaurants. Its total revenues declined from $ 2.5 million in 2004 to $ 2.45 million in 2005 and $ 2.43 million in 2006. This decline is evident in company-owned and franchised restaurants. Dave Thomas opened our first Wendy's restaurant in 1969 in Columbus, Ohio. He opened the door to a new gold standard in quality food. When other restaurants were using frozen beef and mass-producing food, Dave developed an innovative method to prepare fresh, made-to-order hamburgers. Every day, we honor his legacy and continue to live through his values by using select, premium ingredients and serving food that's made fresh with every order. The goal of Wendy’s is to attain success internationally through the expansion of their operations without compromising on the corporate values of superior quality and competitive prices. In order to achieve this aim the company must consider factors that determine consumer behavior such Page 1

Wendy’s International 2007 Case Analysis

as consumer needs, culture and attitudes. To obtain a competitive advantage the company will have to determine which factors have most influence on the consumers. KEY FACTS 2007:  5,936 Stores in the US  1274 company owned  All 50 states and DC (Maine has 4!)  709 International Stores in 20 countries  376 in Canada  140 company owned  3rd largest hamburger fast food chain  Square ground beef hamburgers (never frozen) and Frosties  # 1 brand for taste and quality (especially the French Fries )

EXISTING VISION STATEMENT Our vision is to be the quality leader in everything we do. NEW VISION STATEMENT Our vision is to become the number one fast food restaurant in the world.

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Wendy’s International 2007 Case Analysis

MISSION STATEMENT Wendy’s believes the most important issue in the restaurant business is to take care of our customers. (1) As a global company, our goal is to provide our customers with the most enjoyable dining experience possible and be the quality leader in everything we do. (2) Wendy’s has a long tradition of meeting ever-changing consumer tastes and items. (3) As we look ahead, we will build on this tradition by bringing even greater variety, higher quality, more nutritious foods along with fresher menu choices into our restaurants. (4) Wendy’s strives to continuously produce quality foods through food science technology and research. (5) Our company is committed to expanding and growing profits in order to sustain recognition while protecting the environment. (6) Our philosophy is to provide for the needs of all our customers while creating a safe workplace for all employees.

COMPANY OBJECTIVES

Maintaining its strong corporate culture based on the values established by Wendy’s founder Dave Thomas. HONORS / AWARDS / RECOGNITION

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Wendy’s International 2007 Case Analysis

I. CENTRAL PROBLEMS The case study is about how Wendy’s will bounce back into business and solve all the crises it is facing. These are the case 2007 key issues:  Largest institutional shareholder, Pelz, attempting to force sale of Wendy’s to Trairc, also owned by Pelz. Pelz also owns Arby’s  Under shareholder pressure, sold Tim Horton’s, the number one brand in coffee and doughnuts business even while it was attempting to penetrate the breakfast fast food market.  Continue with revitalization plan and commitment to quality.

II. OBJECTIVES  Increase Market Share  Grow franchise ownership  Quality control through backwards integration and process managemenat  Expand meal and food offerings

III. AREAS OF CONSIDERATION Internal Factors

Favorable Factors

Unfavorable Factors

External Factors

Strengths Expert Management Atmosphere adds value Global Brand Strong Supply Chain

Opportunities International Market Advances in Technology Fresh Burger Market Recession

Weaknesses Breakfast Menu Management Changes

Threats Food Borne illness Increase in Beef Prices

SWOT Analysis Strengths 1.

Wendy’s was the first to demonstrate its commitment to providing healthy food choices in August 2006, when it announced that it would voluntarily switch to using healthy oils in the preparation of most of its food items. Page 4

Wendy’s International 2007 Case Analysis

2. 3.

4. 5. 6.

7.

8.

9.

Even though Wendy’s market share is small, it holds a unique position in the industry due to the fact that it commands large brand awareness. Wendy’s is credited with being the first on several fronts. It was the first in the industry to introduce the convenience of a “drive through window” in the 1970, the 99 cent value menu in the 1998 and the super bar in the late 1980. As recently as April 2007, Wendy’s was voted number 1 in consumer taste tests and brand awareness. Wendy’s risk management team has fared well in managing is foreign exchange exposure. Wendy’s strengths can be attributed to the quality and services they render to their customers. Uniformity exists among all the restaurants, continual in-service training of employees is practiced and operations monitored by company personnel who give recommendations to assist in compliance with customers specifications. With all these put into practice, they are able to maintain quality and good services to their customers. Another core strength is that Wendy’s have strong capital foundation, which can be attested by the mergers with other companies like Tim Horton’s. This enables them to expand internationally at a moderate rate e.g. in 1997 they had 5000 stores and by 2001 they had opened another 1000 stores. Goodwill can be said to be a good reputation that a company holds, Says Khan (2004) Wendy’s definitely has a huge goodwill since its quality products and services are well known in more than 20 countries. For this reason I have to classify it as one of its strengths. Wendy’s workforce has good and reputable experience in the fast food industry. This can be attested by the good performance over the years thus making this to be strength.

Weaknesses 1. 2.

3. 4.

5. 6. 7.

8.

Following a wave of layoffs and cost cutting, Wendy’s net income dropped 58 percent in 2006 to$94 million as the company closed 199 restaurants during the year. US sales declined with the occurrence of unfortunate events, such as the gay and lesbian boycott in 1997, the tragic massacre of Wendy’s in 2000, and fraudulent claims filed by a customer in March 2005 claiming that she found a fingertip in her chili bought at a Wendy’s restaurant in San Jose, California. As a result, Wendy’s closed several of its restaurants. Wendy’s total worldwide sales decline from $2.5 billion in 2004 to $ 2.4 billion in 2006 was primarily fueled by revenue losses in the US market. In 2006, Wendy’s closed 162 franchises and 37 company-owned restaurants, a total of 199 or approximately 3 percent of the 6673 restaurants held. The number of restaurant closures during 2004, 2005, 2006. Wendy's current strategy only focuses on US & Canada. Since the passing of Dave Thomas in 2002, Wendy's lost their opinion leader who helped to create "TOMA." However, after the death of Dave who was the founder of Wendy’s, the company was unable to come up with good advertising campaign to draw customers to their restaurants thus this weakness contributed to ineffective advertisements. The management also are reluctant to change hence resulting in the recent poor performance of Wendy’s. This actually should be classified as the main weakness as it’s through this that Wendy’s has been slow in developing new products. Page 5

Wendy’s International 2007 Case Analysis

Opportunities 1. McDonald’s were unsuccessful with their spicy chicken sandwich. 2. MCD is doing very well financially even though it does still use trans-fat oils in an unhealthy manner. 3. These restaurants are still used trans- fat oils as of June 2007. 4. Wendy has a great opportunity of incorporating breakfast menu among other products like in their restaurants thus making a name for itself in the morning. This introduction can bring about the increase of sales eg sales been boosted up to an approximation of $160000 per store. 5. An additional opportunity is that Wendy’s can expand internationally given that it has huge capital to increase its franchise. Threats 1. Wendy’s direct competitors are McDonald’s, Burger king and Yum brands, all of whom are much larger thanks Wendy’s in their fast food restaurant business. 2. MCD is the largest player in size and global reach. With a total of about 31700 restaurants worldwide. Its sales in 2006 were $ 16.1 billion. 3. YUM is ranked 262 among the fortune 500 companies and is considered the largest in the industry in the number of locations held worldwide. 4. YUM is proud of its commitment to diversity and a good work environment as it continuous to be recognized among” Top 50 Employers for minorities”. “Top 50 Employers for women”,”40 Best companies for diversity” and “30 hottest franchises for 2006”. 5. YUM is on the path to building a global business through aggressive international expansion. 6. Each of its flagship brands also dominates the segment with the differentiation strategy it pursues. This is in contrast to Wendy’s strategy of positioning itself as a niche player. 7. MCD seeks to follow a cost leadership strategy by aggressively expanding and saturating the market place through value –priced menu items. 8. BKC offers a variety of burgers, chicken sandwiches, breakfast items and compete directly with MCD. 9. Criticism made against Wendy’s food e.g. like that of Anna Ayala claiming that the food she was sold to was having a human finger in it, are the kind of threats that Wendy’s is facing. 10. Another potential threat is the price wars in the fast food industry. Most companies seem to be copying each other in their endeavor to gain market share and this has resulted to price wars e.g. in 2002.This can happen again anytime therefore posing as a threat to Wendy’s. IV. ALTERNATIVE COURSES OF ACTION Alternative #1: Alternate one focuses on growth through market expansion and innovation. Advantage: This initiative involves developing and growing in various markets – North America, Europe and Asian. The company should also capitalize on the current low interest rates, increasing customer relationships and satisfaction through café formats, following health trends of aging target market to develop customer loyalty, through partnerships in fad prizes in kid’s meals and collectibles for adults, and enhancing benefits to attract employees from the diminishing workforce. Disadvantage: Page 6

Wendy’s International 2007 Case Analysis

Alternative #2: Merge with McDonalds or Burger King. Advantage: This alternative of merging with McDonald’s or Burger King will enable Wendy’s to become a part of the leading company in the fast-food industry. With such a merger, Wendy’s will be part of a larger enterprise with significant revenues and global presence. a. Have more promotions on healthy food. b. Promote the kids. c. A larger community presence and role Disadvantage: One potential negative of a merger is the possibility of a loss of the Wendy’s logo and name. This, of course, is a function of the decision made by the management of the new company; whether to keep the Wendy’s logo or leverage totally of the McDonalds or Burger King logos. Another key point to keep in mind is whether the merger is creating any wealth for the company’s shareholders. If the merger does not provide the bang for the buck from the shareholder’s perspective, then the management has not done a good job by going ahead with the merger.

Alternative # 3: Sell off Tim Horton’s and Baja Fresh and focus only on the growth of Wendy’s Old Fashioned Hamburgers. Advantage: This alternative would entail finding some suitable buyers for Tim Horton’s and Baja Fresh and pursuing aggressively towards it. Starbucks may have a potential interest in Tim Horton’s as it provides not only a fine distribution in Canada but also a fine brand addition to their existing product portfolio. Buying Tim Horton’s would directly eliminate a competitor (one of the five industry forces) and translate immediately to bottom-line improvements for Starbucks. From the perspective of Wendy’s International, the elimination of the coffee and baked foods business enables the company to have a better focus on its core competence – cooking and selling hamburgers. By a similar rationale, Baja Fresh could be sold off to a leading Mexican food joint (like Pappas or Taco Bell). Disadvantage:

V. STRATEGY FORMULATION / RECOMMENDATION I therefore conclude that the best solution to the problem is alternative course of action #1. Of all the alternatives available to Wendy’s, my recommendation is Alternative 1 – Growth through market expansion & focused innovation. I believe that this strategy provides the biggest bang for the buck. Alternative 2 is highly dependent on the financial impact and potential “loss of control” of the company’s logo and image. Alternative 3 is definitely not a good route to take in a bearish economy. Based on Wendy’s vision and mission statements combined with a brief SWOT analysis of their strengths and weaknesses, a strategy has been developed that will recapture Wendy’s core essence of operations by creating and emphasizing providing quality products. This means the day to day operations must place an emphasis on maintaining fresh ingredients, reducing waste, increasing efficiency, and offering superior customer service. There are numerous ways to accomplish these task Page 7

Wendy’s International 2007 Case Analysis

but they must be ingrained from the top and communicated down and laterally as well. Individual leadership through management positions must place a significant amount of detail on ensuring proper and timely delivery of supplies, hiring competent and resourceful workers, and an adequate amount of supervision and training for employees so that day to day operations are conducted with precision, confidence, and in a superior manner.

VI. PLAN OF ACTION 1. Expanding the research and development function, strategic insights, and operations innovation for developing new products. Wendy’s should also increase its funds in research and development. In the early days Wendy’s used to be the leader of innovation before it was overtaken by MacDonald’s. This was one of its main characteristics they used to proud themselves with thus they should try and win it back. This can only be done by continuous improvement and this means funding more of the research and development and also taking their employee for refresher course. 2. Promote a healthier menu for Breakfast, Meals and late night snacks by Coming up with an advertising campaign, a mass advertising relying on celebrities 3. Display on all food packaging and in all restaurants that we use non-trans fat oils to cook our foods& Continue to focus on providing customers healthier food options and not just expanding the menu. 4. Continuing on developing its staff & on enhancing product variety to satisfy customers’ needs & tastes & gaining customers’ loyalty, by doing this, Wendy’s will increase its sales revenue. 5. Focusing on expanding globally in other countries outside the states, the good image and reputation of Wendy will help a lot in this case as well as the capital foundation. 6. Launching a direct marketing campaign for Wendy’s new breakfast menu by capitalizing on its brand awareness and good reputation, this will be a good chance for product variety and increasing sales. 7. Since Wendy’s is a multi-national company ,with large access to capital, efficient distribution channels and highly skilled and experienced worker force, the management should implement a broad target that will counter attack it competitors 8. Since Wendy’s was known for its quality and freshness of its products, then the management should strive to rejuvenate its main brands. This will enable the company to be viewed as new and still maintaining the same quality of its products. Eventually it is bound to attract the younger generation and cope with the recent developments in the industry. 9. Wendy’s has wide access to capital and it can use its capital to capture new markets. Something like breakfast menu introduction is bound to bring a lot of revenue and so why not introduce it? Using this capital Wendy’s can also proceed to expand internationally to untapped market. There are some countries that their economies are coming up fast and Wendy’s need to invest in these economies. Countries like the former soviet states, South Africa, South America etc. are coming up swiftly and Wendy can capitalize on them.

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Wendy’s International 2007 Case Analysis

VII. POTENTIAL PROBLEMS 1. What if labor turnover will be affected such as management training and quality training? 2. What if the Internet could give negative perceptions especially about the scandals, crises and any issues about Wendy’s? 3. What if cultural issues with International Stores will 4. What if the new locations will not be available? 5. What if public relations cannot be amend? VIII. CONTINGENCY PLANS While there needs to be a keen and significant amount of emphasis placed on operations and customer service as these two areas are seen as providing the backbone of providing quality products and service, there also needs to be a heavy amount of attention given to initiatives such as developing new products, offering greater diversity of products, increasing presence overseas, and creating better management programs which will need to come down through corporate policy. The second point of emphasis for Wendy’s should be on increasing market share through global expansion. Especially with the current economic hardships throughout the United States right now and the weak US dollar, global sales will remain critical for providing Wendy’s with additional revenue and penetrating the market deeper to create stronger brand identity. Wendy’s further needs to attempt to gain greater market share needs to develop new products and offer more selection of products. Lastly, Wendy’s need to worry about strengthening their learning and growth programs for managers and employees. There are numerous ways Wendy’s could go about doing this however, finding a successful way to do will be key as retention of good and competent managers and employees will help ensure greater operational efficiency and thus greater customer service and better quality food.

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