Case Analysis: Profitability of Wendy’s Chilli Essay

Dave Thomas, the present of Wendys eatery, opened his first eating place on November 15, 1969 in Columbus, Ohio. Dave was born in Atlantic City, New tee shirt on July 2, 1932. He was adopted at six weeks onetime(a) by Rex and Auleva Thomas. Dave moved from state to state with his father when his m different(a) passed at the come on of 5. At the age of 12, Dave obtained his first job at a eating place in Knoxville. Thus, he began his love for the eating house business. At the age of 15, Dave dropped forth of high school to work upright 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 quaternity failing Kentucky Fried Chicken restaurants in Columbus, Ohio. Utilizing his past be, Dave turned the restaurants around, sell them back to KFC, and immediately became a millionaire all at the age of 35. He then co- founded Arthur Treachers Fish and Chips.Dave again capitalized on his experiences in restaurant management when he obstinate to establish his own restaurant. Since ground beefs were his favorite nutrition, Dave decided to start a restaurant that would serve a flavour hamburger without a 30 minute waiting period. Named for his eight year old daughter, Dave started Wendys. In read to focus on quality and remain competitive, the fare was limited to four basic products excluding beverages. The product line included hamburgers, chili, french fries, and Wendys Frosty Dairy Dessert.Wendys hamburgers patties consisted of pound of 100 portion pure domestic beef, served as a square shaped bar rather than a round shaped patty, and served hot n voluptuous in accordance with individual customer orders. The french fries were slit slightly longer and thicker from high quality potatoes and cooked in specially-designed fryers to allow the in spite of appearance to be cooked without burn ing 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 basic menu item. Whenever the cook overestimated customer engage, beef patties stayed on the grillwork beyond the recommendedtime. This caused the beef patties to be well done. To fend off customer dissatiscircumstanceion, Wendys used the well done beef patties that had been preserve from the previous day and could not be served to customers. Each eight troy ounce serving contained about a quarter pound of ground beef. Wendys chili is correctd by the protagonist manager or an see crew member using an original recipe. The labor constitute for the assistant manager and crew member is listed in duck 1. The cost to prepare the chili is listed in display panel 2 downstairs. T able-bodied 3, illustrates the direct cost associated with the production of chili.Table 1. Labor costs for assistant m anager or a crew member to prepare chili in 1978Table 2. Ingredients and costs in 1978.Table 3. Direct cost for 1978In the feature 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 small pieces, adding the other ingredients and stirring the batch six times. Sixty percent of the centre one-year gross revenue for chili occurred during the months from October to March. The chili product has the lowest gross pelf margin. The 1978 labor and additional direct costs are listed in Table 4 below.Table 4. Cost of long pepper Preparation, Overall Cost of Chili and Profit of Chili.In November 1979, Wendys became the first national restaurant bowed stringed instrument to introduce a Salad barricade on the menu. Initial test trade of the salad bar imagination had been successful. This innovative idea als o posed a dilemma. If Wendys was to follow their limited menu pattern, the salad bar would potentially set back 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 andcooking too many hamburgers. While hamburgers comprised 55 percent of total sales, chili sales comprised of five percent of total sales. The chili was most(prenominal) popular between the months of October through and through March. During these months, 60 percent of the total one-year chili sales occurred. Management 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 give to the company by owners of franchised restaurants, from tips paid by the owners of franchised restaurants for technical assistance and from use up earned on investment s. By 1978, Wendys operated 1,407of restaurants. Of this number, 1,119 stores were owned by franchisees. Franchised stores were strengthened to a uniformed specification and were not located within the kindred market areas as company-owned stores.Most 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 prior to the opening of a restaurant for serve such as site selection, construction schemes, initial training for owners and faculty 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 quest 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 pro duct distinction marketing schema, quality food, quick expediency and just prices, Wendys was able to give 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 stomach on the quality of a few menu items and allowed Wendys to quick prepare a meal to the customer specifications. The limited menuconcept 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 moment 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 fresh from the special grill within a short span of time. While other resta urants 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 requested 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 proceeds. Their innovative style of management has made Wendys a leader in the fast-food industry. By catering to puppyish adults and adults, Wendys has attempted to create brand loyalty among their target customers. Wendys recognized the dynamic needs of the ir 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 strategical 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 people experience new challenges and are raise about being on a winning team (Swanson, 2001). The entre of a salad bar will contribute to a diversification strategy that will also augment theirinnovative approach.Chart 1. Sales proportion of Wendys and competitors. property 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 go 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 boldness and helps to define 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 Bar concept. Since Wendys has placed a high emphasis on quality, a Salad Bar concept introduces various adventure factors which may cause dissatisfaction among the customers. guess 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 economise a consistent standard, Wendys should prepare the salad and sell the item as a pre-packaged menu item . We also recommend Wendys further appreciate 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 fanny then be used as a topping for a salad, such as a Taco Salad.ReferencesHoovers fact sheet. (2003). Retrieved fromwww.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.