Case Analysis: Profitability of Wendy’s Chilli Essay

Dave Thomas, the pause of Wendys eatery, opened his initial restaurant on November 15, 1969 in Columbus, Ohio. Dave was natural in Atlantic City, unused Jersey on July 2, 1932. He was espouse at sestet weeks old by Rex and Auleva Thomas. Dave moved from raise to state with his father when his m other passed at the age of 5. At the age of 12, Dave obtained his commencement ceremony job at a restaurant in Knoxville. Thus, he began his erotic love for the restaurant business. At the age of 15, Dave dropped out of mettlesome school to ca-ca full time in the restaurant business.While working regular at the Hobby House restaurant, Dave met Colonel Sanders, the founder of Kentucky Fried sensationalistic (now KFC). In 1962, Dave was offered the opportunity to turn a speech rhythm 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 all at t he age of 35. He then co-founded Arthur Treachers tip and Chips. Dave again capitalized on his experiences in restaurant solicitude when he discrete to establish his own restaurant.Since hamburgers were his favorite food, Dave decided to start a restaurant that would serve a pure tone hamburger without a 30 sensitive waiting period. Named for his eight year old daughter, Dave started Wendys. In gear up to center on on quality and remain competitive, the bill was hold in to four radical merchandises excluding beverages. The product line included hamburgers, cayenne, french fries, and Wendys Frosty dairy Dessert. Wendys hamburgers patties consisted of ? pound of 100 percent pure domestic rush, served as a squ atomic number 18 shaped patty kinda than a round shaped patty, and served hot n juicy in accordance with idiosyncratic client orders.The french fries were sliced slightly longer and thicker from high quality potatoes and cooked in excessly-designed fryers to allow the inside to be cooked without burning the outside. Wendys Frosty 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 primary card level. Whenever the cook overestimated customer demand, screech patties stayed on the grill beyond the recommended time. This ca employ the beef patties to be well do.To avoid customer dis enjoyment, Wendys used the well done beef patties that had been refrigerated from the previous day and could non be served to customers. Each eight ounce serving contained about a quarter pound of ground beef. Wendys chili is gear upd by the assistant manager or an experienced crew section victimization an original recipe. The labor cost for the assistant manager and crew division is listed in flurry 1. The cost to prepare the chili is listed in tabulate 2 below. T able 3, illustrates the extend cost associated with the production of chili. Table 1. re pulse costs for assistant manager or a crew member to prepare chili in 1978 Table 2. Ingredients and costs in 1978. Table 3. Direct cost for 1978 In the event 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 puzzle out required chopping the meat into small pieces, adding the other ingredients and stirring the batch six times. Sixty percent of the total annual sales for chili occurred during the months from October to March.The chili product has the lowest gross moolah margin. The 1978 labor and additional direct costs are listed in Table 4 below. Table 4. comprise of Chili Preparation, Overall Cost of Chili and Profit of Chili. In November 1979, Wendys became the first national restaurant chain to introduce a Salad turn out on the menu. Initial test marketing of the salad bar construct had been successful. This innovative idea also 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 more hamburgers. While hamburgers comprised 55 percent of total sales, chili sales comprised of vanadium percent of total sales. The chili was most popular between the months of October done March. During these months, 60 percent of the total annual chili sales occurred. focus was faced with deciding which product would be best to sustain long-term profitability.Wendys revenues were derived from the sales make from company-owned restaurants, from royalties pay to the company by owners of franchised restaurants, from fees paid by the owners of franchised restaurants for technical assistance and from busy earned on investments. By 1978, Wendys operated 1,407of restaurants. Of this number, 1,119 stores were owned by franchisees. Franchised stores were built to a uniformed condition and were not located within the same market areas as company-owned stores. near restaurants were located in urban or densely populated suburban areas a large volume of customers was a primary factor for Wendys success. Each franchisee paid a $15,000 fee for technical assistance anterior to the opening of a restaurant for services such as set selection, construction plans, initial 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 blues is listed in Table 5 below (Moodys, 1980, p. 1565). Table 5. By focusing on a product differentiation marketing strategy, quality food, quick service and 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 make do with other fast food restaurants serving items such as chicken. In 1970, Wendys broke new grounds by opening a second 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, be answer their product was served fresh from the special grill within a short span of time.While other restaurants offered a standard pro duct through their dive-thru window, Wendys differentiated their concept by offering a product that was prepared fresh to the customers specifications. Therefore, the product delivery time did not increase when preparing the order as requested by the customer, whether in the dine room or through the pick-up window. Wendys used a product differentiation onslaught 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 port 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 supply to young adults and adults, Wendys has attempted to create brand loyalty among their point customers. Wendys recognized the dynamic needs of their customers and consequently offere d a dining experience that emphasized 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 commonwealth experience new challenges and are excited about being on a winning team up (Swanson, 2001). The introduction of a salad bar will contribute to a variegation 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 still 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 a nd 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 channelize the organization and helps to define the corporate culture and distinguished Wendys from the competitors. production line 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 chevron concept. Since Wendys has placed a high emphasis on quality, a Salad Bar concept introduces various risk factors which may 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 2 of the risk factors. Also, the Salad Bar concept would require additional labor to make full the stock.To maintain a consistent standard, Wendys should prepare the salad and sell the item as a pre-packaged menu item. We a lso recommend Wendys get along evaluate removing chili from the menu in the 128 restaurants in the southern states during the spend months since sales decrease to 40 percent during this time frame. Excess beef patties can then be used as a go past 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.