Case Analysis: Profitability of Wendy’s Chilli Essay

Dave Thomas, the damp of Wendys eating house, opened his archetypal eating house on November 15, 1969 in Columbus, Ohio. Dave was born in Atlantic City, New Jersey on July 2, 1932. He was adopted at sextette weeks old by Rex and Auleva Thomas. Dave moved from verbalise to state with his father when his mformer(a) passed at the age of 5. At the age of 12, Dave obtained his first job at a eating house in Knoxville. Thus, he began his love for the restaurant business. At the age of 15, Dave dropped out of advanced up school to work encompassing clock in the restaurant business. musical composition working(a) full- while at the Hobby mansion restaurant, Dave met Colonel Sanders, the founder of Kentucky Fried Chicken (now KFC). In 1962, Dave was offered the opportunity to turn around quadruplet failing Kentucky Fried Chicken restaurants in Columbus, Ohio. Utilizing his past experience, Dave turned the restaurants around, sold them dressing to KFC, and immediately became a m illionaire either at the age of 35. He thusly co-founded Arthur Tr for each oneers Fish and Chips. Dave again capitalized on his experiences in restaurant management when he discrete to establish his own restaurant.Since hamburgers were his favorite food, Dave distinct to start a restaurant that would dole out a case hamburger without a 30 minute waiting period. Named for his cardinal year old daughter, Dave started Wendys. In assemble to focus on tonicity and go forward competitive, the nonice was exceptional to four elemental intersection pointions excluding beverages. The harvesting line included hamburgers, cayenne pepper, french fries, and Wendys Frosty dairy Dessert. Wendys hamburgers patties consisted of ? pound of 100 percent dainty domestic cunt, served as a straight shaped patty rather than a round shaped patty, and served hot n juicy in accordance with private customer orders.The french fries were shredded slightly longer and thicker from broad(pre nominal) part upsurgeatoes and cooked in specially-designed fryers to allow the inside to be cooked without burning the outside. Wendys Frosty Dairy Dessert is a thick amalgamate of vanilla and chocolate flavors and must be served with a spoon as a dessert rather than a straw. Wendys chilly is the fourth basic plug-in token. Whenever the cook overestimated customer demand, beef patties stayed on the grill style beyond the recommended time. This ca employ the beef patties to be well through.To avoid customer dis felicity, Wendys used the well done beef patties that had been refrigerated from the previous day and could non be served to customers. Each eight troy ounce serving contained about a keister pound of ground beef. Wendys chili is holdd by the adjunct bus or an experienced crew instalment using an original recipe. The grind equal for the assistant manager and crew constituent is listed in tabularise 1. The cost to prep atomic number 18 the chili is listed in dodge 2 downstairs. Table 3, illustrates the direct cost associated with the passment of chili. Table 1.Labor 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 concomitant of a shortage of overcooked patties, beef patties were cooked for the repair purpose of inclusion in the chili. In order to prepare a pot of chili, it took 10 to 20 minutes of supply time. This process required chopping the meat into low-pitched pieces, adding the other ingredients and stirring the batch half dozen times. Sixty percent of the total yearly sales for chili occurred during the months from October to March.The chili crossing has the lowest gross gather margin. The 1978 labor and extra direct costs are listed in Table 4 below. Table 4. represent of Chili Preparation, Overall Cost of Chili and Profit of Chili. In November 1979, Wendys became the first matter restaurant set up to introduce a Salad turn out on the add-in. Initial test merchandise of the salad obstruction model had been successful. This innovative idea too posed a dilemma. If Wendys was to total their limited bill of fare archetype, the salad bar would potentially replace chili since it had the lowest profit margin on a full cost basis.Then, management would be go about with containing the cost of the overcooked patties that resulted from overestimating customer demand and fancyning 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 with March. During these months, 60 percent of the total one-year chili sales occurred. Management was set about with deciding which product would be opera hat to sustain long-term profitability.Wendys revenues were derived from the sales make from company-owned restaurants, from royalties paid to the company by owners of fra nchised restaurants, from gives paid by the owners of franchised restaurants for technical attention and from spare-time activity earned on investments. By 1978, Wendys operated 1,407of restaurants. Of this number, 1,119 stores were owned by franchisees. Franchised stores were construct to a uniformed specification and were not located at bottom the same market areas as company-owned stores.Most restaurants were located in urban or densely inhabit suburban areas a large book of customers was a primary factor for Wendys success. Each franchisee paid a $15,000 fee for technical assistance prior to the fountain of a restaurant for services such(prenominal) as site selection, construction inventions, 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 narration from glowerings 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 healthy prices, Wendys was able to achieve its monetary success and to grow rapidly at a time when the fasting-food industry appeared to be saturated. The adoption of the limited bill concept in any case 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 stone-broke new grounds by opening night a second restaurant with a unique feature. This restaurant featured a drive-thru window with a special gri ll within the pick-up window. Wendys was able to achieve success in their drive-thru window concept, because their product was served fresh from the special grill within a short span of time.While other restaurants offered a standard product 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 call for by the customer, whether in the dine room or through the pick-up window. Wendys used a product differentiation burn up 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 in like manner 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 manageme nt 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 high-voltage needs of their customers and consequently offered 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 slew experience new challenges and are wound up about being on a winning team (Swanson, 2001). The introduction of a salad bar will contribute to a diversification strategy that will also augment their innovative approach. Chart 1. gross revenue comparison of Wendys and competitors. Quality was a foundational component in the first Wendys restaurant.This was due large ly to uncompromising hotness for quality by the founder, Dave Thomas. Quality comfort 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 heap statement of Wendys is to be the quality leader in everything we do (Swanson, 2001). This spirit value has guided the organization and helps to sterilize the corporate culture 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 banding concept. Since Wendys has placed a high emphasis on quality, a Salad disallow concept introduces various bump factors which whitethorn cause dissatisfaction among the customers. Risk factors such as foreign objects falling into items on the Salad Bar and th e food area remaining hygienize 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 denounce the item as a pre-packaged menu item. We also recommend Wendys farther 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 Inves tors 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.