PROBLEMS IN RETRENCHMENT

REMEMBER the days, only a year ago, when the fast-food restaurants couldn't find enough
counter help? Outfits like Wendy's even recruited teen-agers in city neighborhoods and bused
them to suburban restaurants. Help-wanted signs appeared in many windows, and the scramble
for entry-level workers in the fast-food industry became the most popular evidence that the
nation suffered from a shortage of young workers.

Now, suddenly, the hiring problems at the fast-food restaurants have evaporated. The busing has
become a rare event, and the help-wanted signs are mostly gone. Job applications are rising and
hourly wages, which had inched up to more than $6 an hour in the Northeast, the Northwest and
a few other sections of the country, have leveled off.

"The markets no longer require that we jump wages significantly; the pressure began to come off
toward the end of last year," said David Gillen, director of personnel at McDonald's, where the
average wage for hourly workers at the 1,700 company-owned outlets is $4.89 an hour. At
Burger King, the average is $4.40 an hour; at Wendy's, $4.10.

Clearly, the downturn in the American economy has eased the labor shortage for entry-level and
low-wage jobs. Hiring freezes and layoffs have forced many more people to seek this work,
which is mostly consigned to young people under 24 years old. Much publicity has been given to
the fact that the current generation in this age group is much smaller than its predecessor, the
baby boom generation. Until the economic downturn fattened the pool of job applicants, many
executives had blamed demographics for their difficulty in finding enough qualified young
workers.

But low wages have been equally at fault because they discourage people from seeking these
jobs, some economists argue. Aside from the fast-food industry, with its more than 3.5 million
workers, the labor shortages showed up at restaurants in general, and at hotels, resorts, retail
stores and other big employers of unskilled hourly workers. They are among 28.7 million people,
or 24 percent of all the jobholders in America, who earn less than $7 an hour.

The personnel practices at the fast-food restaurants help to explain why the wages of workers in
this under $7-an-hour category rose much less in the 1980's than the incomes of better-paid
Americans. Wendy's for example, recruits heavily among retirees, who seek to supplement their
pensions and are less likely than younger workers to apply pressure for higher wages. More than
9 percent of all fast-food employees were over 55 in the late 1980's, a Government survey found.
Mothers of young children are another source of recruits, the lure being flexible work schedules
at a store near their homes. The flexibility allows them to be home when they wish. The mothers
aremostly part-time workers; in fact, most workers in fast-food restaurants are part-time
employees, and part-time employees tend to be less insistent on wage increases than full-time
workers. Wendy's, for instance, says 90 percent of the 120,000 people at its restaurants work part
time, and it does not provide health benefits for them -- another major savings.

Perhaps the most important damper on wages has been the willingness of the fast-food industry
to operate short of staff, rather than offer slightly higher pay to attract young people from among
the millions who have been reluctant to enter the labor force. If a restaurant manager with a
normal staff of 20 needs five more employees to complete his roster, and he offers $5.50 an hour
to get them, then the 15 counter workers making $4.50 an hour are likely to seek the same pay.

Dennis Lynch, a Wendy's spokesman, tells of a rival fast-food operator in Pittsburgh who tired of
being chronically short of help. He raised the wage of his workers to $6 an hour, although
Wendy's and other competitors in the neighborhood were paying $4.50. "He was right. He
quickly got a full staff," Mr. Lynch said. "But sales did not rise, his costs were too much and he
had to retrench on wages."

The shortage of young workers and the temptation to raise wages were particularly acute in
Massachusetts in 1988. With the unemployment rate below 3 percent, fast-food restaurants
scrambled for hourly workers and pay rose to $6.50 an hour -- the highest for Wendy's in the
nation -- from about $4 in 1984. The line held at $6.50, and when the economic downturn finally
came, starting pay was still at this level and the pressure for another wage increase disappeared.

That makes the downturn a "double whammy" for young, less-educated hourly workers, says
Lawrence Katz, a Harvard University labor economist. "Their best shot at breaking the wage
ceiling came in 1988, and it failed," he said. "Now with labor more plentiful, it is not as easy for
them to get a job, and when they do, the wage is frozen."

As minimum wages rise, Wendy's is swapping out employees for kiosks.

The fast-food chain plans to roll out kiosks across the US by the end of 2016, in part due to the
rising cost of labor. Kiosks will be made available to franchisees later this year, giving
franchisees the choice of whether or not to install the self-service tech.
In addition to the self-ordering kiosks, the company is focusing on tech such as mobile order and
pay, intended to cut down on employees' work and responsibilities. Wendy's is also investing in
behind-the-scenes technology that could reduce the time it takes for employees to do things such
as schedule shifts.

"We continue to use all of those tools to mitigate any of the inflation that we see on the wage
front," Wendy's President and CFO, Todd Penegor said in a call with investors earlier in May.

Wendy's is far from alone in looking to tech as a way to reduce labor costs.

LEADING AND MANAGING CORPORATE CULTURE

Wendys organizational structure is relatively simple compared to those of other large fast food
restaurant companies. The organizational structure defines the arrangement of the companys
components, and specifies the patterns of interaction among these components. Wendys
corporate structure has remained largely the same through the years. Despite minor reforms, the
company has focused on corporate control through its structure. As the worlds third biggest
hamburger fast food restaurant chain, Wendys carefully implements global expansion strategies.
These strategies are effectively applied and supported through Wendys organizational structure.

Wendys employs its organizational structure to maximize operational effectiveness. However,

some changes may be necessary to maintain the structures support for Wendys global
expansion.

Wendys has a functional organizational structure. This organizational structure uses business
functions as bases for grouping resources and activities. Instead of having geographic divisions,
the company uses a centralized management structure. The following are the prominent
characteristics of Wendys organizational structure:

Corporate Function-Based Groups. Wendys has centralized function-based groups for the
entire global organization. For example, the company has a legal department, an accounting
department, and a marketing department. This feature of Wendys organizational structure
provides the basic mechanism to address business functions. The activities of each of these
groups affect the companys operations worldwide. All of Wendys corporate directives and
policies originate from these groups.
Global Hierarchy. This characteristic of Wendys organizational structure involves vertical lines
of authority, command, and communication. For example, concerns are escalated from
franchisees and regional offices to the corporate headquarters. In this way, Wendys
organizational structure supports global control of business operations. This feature also shows
the traditional nature of the companys structure.
Local Teams. Teams are part of Wendys, especially at the level of local operations, which are at
the bottom of the organizational structure. For example, Wendys restaurants use teams for daily
operations. These teams are flexible units that support fluctuations in the companys daily
operations. The development and activities of these teams are based on Wendys corporate
standards.

The main advantage of Wendys organizational structure is its support for control of global
operations. The centralized function-based groups enable effective implementation of policies
and strategies throughout the global organization. Also, this organizational structure supports
Wendys current focus on the North American market. However, lack of flexibility to support
international growth is a disadvantage of such organizational structure. Wendys centralized
management structure does not easily enable changes at the local or regional levels. This
condition is partly due to Wendys current focus on growing its business in North America.