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A CASE ANALYSIS ON WENDYS In partial fulfillment for the Requirements of LS126 Strategic Management Submitted To: Mr.

Ramon Mayuga By: Decena, Kimberly T. Dy, Tiffany Ann L. Gastanes, Raphael Edwin L. Lim, Stefano Angelo L. Requejo, Justine Veron T. Santos, Michelle Anne C. Tan, Danielle Marie C. September 13, 2012

EXECUTIVE SUMMARY One of the known players within the fast-food industry is Wendys. For years, they have been successful in the innovation of some key important areas in the industry like the drive thru. But along with other brands such as McDonalds, Burger King and YUM Brands, Wendys still needs to improve on a number of areas like adapting to the changing market, gaining market share, and ensuring growth, as well as profitability in the long run. What Wendys needs to do is to examine deeply their area of focus so that they may remain relevant in an industry that has slowly become more globalized. This involves the process of refocusing on its core business function---that is to provide healthy and quality hamburgers and meals. The aim of this report is to identify, formulate and evaluate strategies the brand can implement so they may improve. This will be done by carefully developing a SWOT analysis, to be followed by the application of different strategic evaluation tools such as the SPACE Matrix, BCG Matrix, among others. By this, the group hopes to provide the framework in which the firm may work on to improve in all aspects of their business (operations, financials, customer relations, etc) BACKGROUND OF THE COMPANY Wendys was started by its founder Dave Thomas in 1969 who named the brand after his second daughter, Melinda, fondly called Wendy by her family. Since then, this Ohio based store experienced fast growth that by 1985, there were already 3,500 stores. Wendys soon began its international expansion and as of December 2006, it already operates not only in the US, but also in 20 other international locations The brand can be credited for several firsts in the industry. They were first to introduce the drive through window in the industry. And in 1970, they launched the 99 cent value menu which proved to be of much success that it was copied by others. Wendys is also known for its Superbar which was an all-you-can-eat salad bar which they launched in the 80s. But among all, Wendys can be credited for their dedication in providing healthy food choices. In fact, in August 2006, they announced that they will voluntarily switch to healthy oils in the preparation of their food items. However, despite all these, the brand was not able to keep up with the industrys fastpaced growth. Since the 80s, several occurrences had happened which lead the companys decline. These include the gay and lesbian boycott, the tragic massacre at Wendys in 2000 and other fraudulent claims made by customers. In 2006, Wendys net income dropped 58% to $94 million, with the company closing 199 branches that year. A year after, following a wave of layoffs and cost cutting, the firm found itself under pressure to be acquired by Triarc, which was owned by one of its largest institutional investors, With the acquisition of Wendys by Triarc becoming successful in 2008, the name was changed to Wendys/Arbys Group Inc. However, come January 2011, the group announced it was divesting itself of the Arby's chain because of its lackluster sales growth.

WENDYS EXISTING MISSION AND VISION STATEMENTS Mission Wendys What We Believe guidelines serve as the brands internal mission statement and external customer service goal. QUALITY IS OUR RECIPE - We don't cut corners on our products, service, or employees! TREAT EVERYONE WITH RESPECT - Be genuine and kind and lend each other a helping hand! DO THE RIGHT THING - Honesty and integrity are rules we live by! PROFIT MEANS GROWTH - Teamwork is the key to our success! GIVE BACK - Make your community better every day! Vision Our vision is to be the quality leader in everything we do Looking at the companys mission and vision statement, its easy to infer how much importance they give much to the quality of not only their food, but also in their service. It is obvious how Wendys strives to uphold and implement the standards and morals of its founder, Dave Thomas--that is, to be the leader in quality and innovation in all aspects of the business.
EXTERNAL OPPORTUNITIES AND THREATS - KIM COMPETITIVE PROFILE MATRIX (CPM) - KIM EXTERNAL FACTOR EVALUATION MATRIX (EFE)

Key External Factors Opportunities 1) Their competitor MCD still uses trans fat oil 2) Average net sales per restaurant have been on an upward trend 3) Wendys(1969) is considered more experienced in the industry compared to YUM (1997) 4) Online order placements and wifi connectivity within their stores are currently in the works in some countries Threats 1) MCD has 465,000 employees compared to its 7,000 2) YUM was able to penetrate the largest number of locations in a short period of time 3) Split with Tim Hortons made Wendys a niche player Total

Weight 0.15 0.20 0.10 0.15 0.15 0.15 0.10 1.00

Rating 3 2 2 2 2 1 2 14

Weighted Score 0.45 0.4 0.2 0.3 0.3 0.15 0.2 2

INTERNAL FACTOR EVALUATION MATRIX (IFE)

Key Internal Factors Weight Strengths 1) Generally innovative that they are first on several fronts 0.10 2) It has a geographic-based divisional structure which means it tailors its product specifically on where the restaurant is located 0.10 3) Large brand awareness of consumers 0.15 4) Healthy products. Nutritional information of the products being sold are available to customers via their website 0.20 Weaknesses 1) Instead of adding new restaurants, several of its branches closed. 2) MCD offers more affordable items on its menu 3) Mainly concerned with hamburgers only Total
SWOT MATRIX

Rating

Weighted Score

0.2

2 3

0.2 0.45

0.6

0.20 0.15 0.10 1.00

1 3 2 16

0.2 0.45 0.2 2.3

STRENGTHS 1) Generally innovative that they are first on several fronts 2) It has a geographic-based divisional structure which means it tailors its product specifically on where the restaurant is located 3) Large brand awareness of consumers 4) Healthy products. Nutritional information of the products being sold are available to customers via their website WEAKNESSES 1) Instead of adding new restaurants, several of its branches closed. 2) MCD offers more affordable items on its menu 3) Mainly concerned with hamburgers only

OPPORTUNITIES 1) Their competitor MCD still uses trans fat oil 2) Average net sales per restaurant have been on an upward trend 3) Wendys(1969) is considered more experienced in the industry compared to YUM (1997) 4) Online order placements and wifi connectivity within their stores are currently in the works in some countries THREATS 1) MCD has 465,000 employees compared to its 7,000 2) YUM was able to penetrate the largest number of locations

SO Strategies ST Strategies 1) Advertisement must always contain a 1) Consumers still prefer them over other

nutritional fact about their products to attract health conscious consumers. 2) Their number of years in the industry is an advantage over others who are relatively new. 3)Innovative ideas gave them an edge several times. (Drive-through window, value menu, healthy food choices) WO Strategies 1) Focus more on restaurants with recorded growth in net sales 2) Sell hamburgers based on their experience of what works. 3) Improvement of current facilities before adding new branches.

brands because of high brand awareness. 2) Emphasize quality over quantity produced. 3) Tailoring of marketing strategy based on how consumers on a particular location would respond.

WT Strategies Defensive tactics directed at reducing internal weakness and avoiding external threats 1) Hire more employees to speed up the processes 2) Factors in approving new branches may need to be reconsidered. 3) Find ways to cut costs in order to lower prices.

SPACE (Strategic Position and Action Evaluation) Matrix Analysis Internal Strategic Position Financial Position (FP) Return on Investment (1) Leverage (1) Liquidity (4) Working capital (2) Cash flow (1) Inventory turnover (4) Earnings per share (2) Price earnings ratio (6) TOTAL: 21/8 = 2.625 Competitive Position (CP) Market share (-4) Product quality (-3) Product life cycle (-3) Customer loyalty (-2) Technological know-how (-3) Control over suppliers and distributors (-2) TOTAL: -14/6 = -2.333 External Strategic Position Stability Position (SP) Technological changes (-3) Rate of inflation (-3) Demand variability (-2) Price range of competing products (3) Barriers to entry into market (-1) Competitive pressure (-5) Ease of exit from market (-4) Price elasticity of demand (-3) Risk involved in business (-2) TOTAL: -26/9 = -2.889 Industry Position (IP) Growth potential (4) Profit potential (4) Financial stability (3) Resource utilization (3) Ease of entry into market (2) Productivity, capacity utilization (4) TOTAL: 20/6 = 3.333 x-axis: -2.333 + 3.333 = 1 y-axis: 2.625 + (-2.889) = -.264 FP CP SP -.264) (1, IP

Competitive Profile A firm that has achieved financial strength in a stable industry that is not growing; the firm has few competitive advantages

Recommendations 1. Market penetration Wendys can increase their current market share by attracting customers from their competitors. One way that this can be done is through aggressive marketing efforts in different forms of media, showcasing the some of the classics, or the strongest selling products of Wendys. They can also attract more people by offering aggressive promotions through discounting, as are being done by several food joints, wherein some, for example, offer unlimited drinks, buy-one-take-one promos, etc. Moreover, Wendys can create a new slogan for their company, which can improve their brand image. 2. Market development Wendys can explore untapped geographical markets all over the world. As of 2006, they are in 51 states in the United States, and 20 countries. With such statistics, there is so much potential in other areas of the world, which can bring in more brand awareness and loyalty for the company in the long run. 3. Product development Wendys can create a new product to be in tune with the current food trends, and changing food preferences of people. Moreover, they can strengthen their competitive advantage if they create a product that may either be differentiated from other existing products, or product a product that is at a lower price against other competing brands. Boston Consulting Group Matrix Stars Question Marks

Cash Cows

Dogs

The BCG analysis almost gives the same recommendations as the ones from the SPACE matrix, if Wendys is considered as a question mark company (relatively low market share in a high-growth industry) Basically, incorporating market penetration through more aggressive advertising, market development, and product development can immensely help the company in re-establishing itself in the market. Internal-External Matrix - MICHELLE Grand Strategy Matrix Rapid Market Growth

Weak Competitive Position

Strong Competitive Position

Slow Market Growth The fast-food industry is characterized by rapid market growth, but Wendys have since had a relatively weak competitive positioning against other brands such as McDonalds and Burger King, as shown by Exhibit 11 of the Wendys Case Analysis 2007. Therefore, there is a need to re-analyze the companys approach regarding gaining competitive advantage and getting a bigger market share against competitors. Wendys should do heavy intensive strategy making for the company, such as aggressive advertising efforts with regards their Superbar and their classic burgers and sandwiches, and expansion to untapped geographical markets. However, given that Wendys has since lost its competitive advantage, they should create new products that will cater to the changing

food preferences of the consumers, which will in turn, entice them to buy from Wendys fast food joints. And as they have shown many firsts in the past regarding fast food practices, it may be a good investment for the company to innovate a new way of attracting customers and at the same time building brand loyalty. However, divestiture and/or liquidation shall be the last option of the company in case the above strategies do not work. QUANTITATIVE STRATEGIC POSITIONING MATRIX - MICHELLE RECOMMENDED STRATEGIES AND LONG TERM OBJECTS 1.) LOWER COST Currently, Wendys is not fully implementing a backward integration scheme, what they are implementing is a forward integration taking control of the distribution channels. We believe that the company must adopt a backward integration scheme in order to control suppliers. There is always an uncertainty and fluctuation of prices in the market by taking over the supplier or the supply chain, the company can be ready to adjust prices easily. If Wendys lowers operating costs profits will increase. Advantage Disadvantage

The company will be able to The company will have to learn to control and adjust the prices of adopt and run an entirely new the different supplies. business. The company can also ensure More manpower and new that only premium quality machineries will be needed. supplies are ordered and used. The company has to raise The company will be able to have sufficient capital to adopt a a steady and easy control of a backward integration strategy. just-on-time delivery system for supplies.

Advantage Disadvantage Adjusting with the trend and A heavier budget must be spent offering one of the first healthy on extensive research and fast-food restaurants development. Attracting more customers and developing products that are somewhat part of the culture of the country. For example, McDonalds serving rice meals. A new training must be implemented to the employees regarding the procedure of making the new product. New equipment and a new production line would be needed Changing the traditional image of to accommodate the new fast-food chains as being product. unhealthy and fattening. The traditional image of Wendys would be changed. 2.) PRODUCT DIVERSIFICATION and MARKET PENETRATION Wendys has a strong brand name in the fast-food industry, however, it does not emphasis its healthier side. With the growing interest in healthy and less fattening food, Wendys may opt to widen its menu to cater to the more health conscious customer. This will in turn allow Wendys to tap a new market that is rapidly growing with its popularity. Currently, the major healthy switch that Wendys implemented was the shift in cooking oil. 3.) AGGRESSIVE LOCAL MARKETING - In line with product diversification, Wendys must start aggressively marketing or advertising its products to the different local markets. It needs to focus on its major competitive advantages. For example, offering a healthier kind of oil than its competitors and offering freshly made quality food. Local advertisements and promotions would be more effective in helping boost the popularity of Wendys then a universal advertisement or global promotion. The present advertising scheme of Wendys is to make more general marketing material to cater to a broader audience.

Advantage Disadvatange Knowledge of competitive A bigger budget would be needed advantages will be more since more advertisements would widespread to the customers. be made. Localizing advertising will allow the audience to be able to relate more and to interact with the advertisement. This will strengthen international positioning of Wendys, More money, time, and effort would be spent due to the fact that every country would have it own advertisement.

4.) Franchising Wendys would be able to expand quicker at little to 0 costs. Wendys is currently being left behind by its major competitors in terms of number of stores, numbers of employees etc. By franchising Wendys can set a goal of X numbers of stores per year. Wendys is presently implementing this strategy however, a set of guidelines and requirements must be set in order for the main management team of Wendys to have control Advantages Disadvantages Quick growth with little to 0 Little control over the franchises cost. set up, especially overseas, also difficult to maintain same quality Offering franchises overseas of products. would increase the presence and brand awareness of Lower percentage of profits than Wendys, and in the process that of company owned stores, raise revenues. only royalties, an initial payment, and partial small percentage are gained.

COMPARISON OF STRATEGIES WITH ACTUAL STRATEGIES OF THE COMPANY IMPLEMENTATION OF RECOMMENDED STRATEGIES TIMETABLE / AGENDA FOR ACTION RECOMMENDED ANNUAL OBJECTIVES AND POLICIES RECOMMENDED PROCEDURES FOR STRATEGY REVIEW AND EVALUATION