Case Analysis: Profitability of Wendy’s Chilli Essay

Dave Thomas, the founder of Wendys eating house, opened his first eatery on November 15, 1969 in Columbus, Ohio. Dave was born in Atlantic City, New Jersey on July 2, 1932. He was adopted at sixer weeks old by Rex and Auleva Thomas. Dave moved from state to state with his father when his mother passed at the age of 5. At the age of 12, Dave obtained his first job at a restaurant in Knoxville. Thus, he began his love for the restaurant business. At the age of 15, Dave dropped out of high school to work full time in the restaurant business.While working full-time at the Hobby House restaurant, Dave met Colonel Sanders, the founder of Kentucky Fried Chicken (now KFC). In 1962, Dave was offered the opportunity to turn around four failing Kentucky Fried Chicken restaurants in Columbus, Ohio. Utilizing his past experience, Dave turned the restaurants around, sold them back to KFC, and immediately became a millionaire every last(predicate) at the age of 35. He then co-founded Arthur Tre achers Fish and Chips. Dave again capitalized on his experiences in restaurant management when he decided to establish his profess restaurant.Since hamburgers were his favorite food, Dave decided to start a restaurant that would serve a spirit hamburger without a 30 minute waiting period. Named for his eight year old daughter, Dave started Wendys. In rank to focus on quality and remain competitive, the notice was limited to four basic produces excluding beverages. The carrefour line included hamburgers, jalapeno, cut fries, and Wendys Frosty dairy Dessert. Wendys hamburgers patties consisted of ? pound of 100 per centum pure domestic call, served as a squ be shaped patty rather than a round shaped patty, and served hot n juicy in accordance with individual customer orders.The french fries were sliced slightly protracted and thicker from high quality potatoes and cooked in excessly-designed fryers to allow the inside to be cooked without burning the outside. Wendys Fros ty Dairy Dessert is a thick blend of vanilla and chocolate flavors and must be served with a spoon as a dessert rather than a straw. Wendys chili is the fourth basic calling card item. Whenever the cook overestimated customer demand, beef patties stayed on the cook beyond the recommended time. This caused the beef patties to be well do.To keep down customer dissatisfaction, Wendys used the well done beef patties that had been refrigerated from the previous day and could not be served to customers. Each eight ounce serving contained about a quarter pound of cast anchor beef. Wendys chili is raild by the assistant manager or an experienced crew share using an original recipe. The labor cost for the assistant manager and crew member is listed in shelve 1. The cost to constitute the chili is listed in Table 2 under. Table 3, illustrates the direct cost associated with the intersection of chili. Table 1.Labor costs for assistant manager or a crew member to prepare chili in 19 78 Table 2. Ingredients and costs in 1978. Table 3. Direct cost for 1978 In the guinea pig of a shortage of overcooked patties, beef patties were cooked for the sole purpose of inclusion in the chili. In order to prepare a pot of chili, it took 10 to 20 minutes of preparation time. This process required chopping the meat into menial pieces, adding the other ingredients and stirring the batch six times. Sixty percent of the total annual gross sales for chili occurred during the months from October to March.The chili product has the lowest gross network margin. The 1978 labor and surplus direct costs are listed in Table 4 below. Table 4. Cost of Chili Preparation, Overall Cost of Chili and emolument of Chili. In November 1979, Wendys became the first national restaurant chain to introduce a Salad Bar on the menu. Initial test marketing of the salad bar concept had been successful. This innovative idea too posed a dilemma. If Wendys was to follow their limited menu concept, the salad bar would potentially replace chili since it had the lowest profit margin on a full cost basis.Then, management would be faced with containing the cost of the overcooked patties that resulted from overestimating customer demand and cooking too many hamburgers. While hamburgers comprised 55 percent of total sales, chili sales comprised of five percent of total sales. The chili was most popular between the months of October through March. During these months, 60 percent of the total annual chili sales occurred. Management was faced with deciding which product would be surpass to sustain long-term profitability.Wendys revenues were derived from the sales made from company-owned restaurants, from royalties paid to the company by owners of franchised restaurants, from fees paid by the owners of franchised restaurants for technical aid and from interest earned on investments. By 1978, Wendys operated 1,407of restaurants. Of this number, 1,119 stores were owned by franchisees. Fran chised stores were strengthened to a uniformed specification and were not located within the same market line of businesss as company-owned stores. just about restaurants were located in urban or densely populated suburban areas a large garishness of customers was a primary factor for Wendys success. Each franchisee paid a $15,000 fee for technical assist prior to the opening of a restaurant for services much(prenominal) as site selection, construction objects, sign training for owners and staff members, advertising materials, national purchasing agreements and operations manuals. For 1978, company-owned stores generated 84. 13% of revenue, royalties generated 12. 65% of revenue, technical assistance fees generated 1. 87% of revenue, and interest from investments generated 1.35% of revenue. The income statement from Moodys is listed in Table 5 below (Moodys, 1980, p. 1565). Table 5. By focusing on a product differentiation marketing strategy, quality food, readily service an d reasonable prices, Wendys was able to achieve its financial success and to grow rapidly at a time when the fast-food industry appeared to be saturated. The adoption of the limited menu concept also contributed to this success. Having a limited menu concept allowed Wendys to concentrate on the quality of a few menu items and allowed Wendys to quickly prepare a meal to the customer specifications.The limited menu concept does not allow for changes in consumer preferences nor does it allow Wendys to compete with other fast food restaurants serving items such as chicken. In 1970, Wendys broke new grounds by opening a act restaurant with a unique feature. This restaurant featured a drive-thru window with a special grill within the pick-up window. Wendys was able to achieve success in their drive-thru window concept, because their product was served unused from the special grill within a short span of time.While other restaurants offered a standard product through their dive-thru wind ow, Wendys differentiated their concept by offering a product that was prepared fresh to the customers specifications. Therefore, the product submity time did not increase when preparing the order as pass on by the customer, whether in the dining room or through the pick-up window. Wendys used a product differentiation approach for their hamburgers. By marketing the hamburgers as a square patty rather than a round patty, Wendys was successful in advertising their hamburgers as old-fashioned. Wendys also cooked each hamburger in a manner that provided a customized hamburger for each customer quickly and at a reasonable price. Innovations have been the key to Wendys growth. Their innovative style of management has made Wendys a leader in the fast-food industry. By catering to young adults and adults, Wendys has attempted to create brand verity among their target customers. Wendys recognized the dynamic needs of their customers and consequently offered a dining experience that emph asised quality food, fast and friendly service within a setting that is common throughout all their restaurants.Wendys has made growth a priority in their strategic plan in order to achieve high employee retention and satisfaction rates. According to Doorley and Donovan, employee satisfaction rises when a company grows, probably because quite a little experience new challenges and are excited about being on a winning group (Swanson, 2001). The introduction of a salad bar will contribute to a diversification strategy that will also augment their innovative approach. Chart 1. Sales comparison of Wendys and competitors. Quality was a foundational component in the first Wendys restaurant.This was due largely to uncompromising passion for quality by the founder, Dave Thomas. Quality pipe down remains the top priority in the food, people and service industry. The mission statement of Wendys is To deliver superior quality products and services for our customers and communities through leadership, innovation and partnerships (Wendys, 2004). The vision statement of Wendys is to be the quality leader in everything we do (Swanson, 2001). This core value has guided the organization and helps to define the corporate finishing and distinguished Wendys from the competitors.Business Creations recommends Wendys pursue adding salads to their limited menu concept however, this should be done as a menu item rather than as a Salad Bar concept. Since Wendys has determined a high emphasis on quality, a Salad Bar concept introduces various risk factors which whitethorn cause dissatisfaction among the customers. Risk factors such as foreign objects falling into items on the Salad Bar and the food area remaining sanitized are just two of the risk factors. Also, the Salad Bar concept would require additional labor to replenish the stock.To maintain a consistent standard, Wendys should prepare the salad and sell the item as a pre-packaged menu item. We also recommend Wendys furth er evaluate removing chili from the menu in the 128 restaurants in the southern states during the summer months since sales decrease to 40 percent during this time frame. Excess beef patties can then be used as a topping for a salad, such as a Taco Salad.References Hoovers fact sheet. (2003). Retrieved from www. hoovers. com/wendys/ID__11621/free-co-factsheet. xhtml, www. hoovers.com/sonic/ID__13112/free-co-factsheet. xhtml, www. hoovers. com/krystal/ID__15659/free-co-factsheet. xhtml, www. hoovers. com/burger-king/ID__54531/free-co-factsheet. xhtml, www. hoovers. com/mcdonalds/ID__10974/free-co-factsheet. xhtml on may 2, 2004. Moodys OTC Industrial Manual. (1980).New York, NY Moodys Investors Service, 1565. Swanson, B. (2001). New strategic plan combines the best of Wendys and Tim Hortons. Wendys Magazine. 13. Wendys strategic plan. Retrieved from www. wendys-invest. com on May 2, 2004.