Wendy's 2008 Annual Report Download - page 18

Quality Assurance
ARG has developed a quality assurance program designed to maintain standards and the uniformity of
menu offerings at all Arby’s restaurants. ARG assigns a quality assurance employee to each of the independent
facilities that process beef for domestic Arby’s restaurants. The quality assurance employee inspects the beef for
quality, uniformity and to assure compliance with quality and safety requirements of the USDA and the FDA.
In addition, ARG periodically evaluates randomly selected samples of beef and other products from its supply
chain. Each year, ARG representatives conduct unannounced inspections of operations of a number of
franchisees to ensure that required policies, practices and procedures are being followed. ARG field
representatives also provide a variety of on-site consulting services to franchisees. ARG has the right to
terminate franchise agreements if franchisees fail to comply with quality standards.
Acquisitions and Dispositions of Arby’s Restaurants
As part of ARG’s continuous efforts to enhance the Arby’s brand, grow the Arby’s system and improve
Arby’s system operations, ARG from time to time acquires or sells individual or multiple Arby’s restaurants.
ARG may use such transactions as a way of further developing a targeted market. For example, ARG may sell a
number of restaurants in a particular market to a franchisee and obtain a commitment from the franchisee to
develop additional restaurants in that market. Or, ARG may acquire restaurants from a franchisee
demonstrating a limited desire to grow and then seek to further penetrate that market through the
development of additional company-owned restaurants. ARG believes that dispositions of multiple restaurants
at once can also be an effective strategy for attracting new franchisees who seek to be multiple unit operators
with the opportunity to benefit from economies of scale. In addition, ARG may acquire restaurants from a
franchisee who wishes to exit the Arby’s system. When ARG acquires underperforming restaurants, it seeks to
improve their results of operations and then either continues to operate them as company-owned restaurants or
re-sells them to new or existing franchisees.
Franchised Restaurants
ARG seeks to identify potential franchisees that have experience in owning and operating quick service
restaurant units, have a willingness to develop and operate Arby’s restaurants and have sufficient net worth.
ARG identifies applicants through its website, targeted mailings, maintaining a presence at industry trade
shows and conventions, existing customer and supplier contacts and regularly placed advertisements in trade
and other publications. Prospective franchisees are contacted by an ARG sales agent and complete an
application for a franchise. As part of the application process, ARG requires and reviews substantial
documentation, including financial statements and documents relating to the corporate or other business
organization of the applicant. Franchisees that already operate one or more Arby’s restaurants must satisfy
certain criteria in order to be eligible to enter into additional franchise agreements, including capital resources
commensurate with the proposed development plan submitted by the franchisee, a commitment by the
franchisee to employ trained restaurant management and to maintain proper staffing levels, compliance by the
franchisee with all of its existing franchise agreements, a record of operation in compliance with Arby’s
operating standards, a satisfactory credit rating and the absence of any existing or threatened legal disputes
with Arby’s. The initial term of the typical “traditional” franchise agreement is 20 years.
ARG currently does not offer any financing arrangements to franchisees seeking to build new franchised
units.
ARG offers franchises for the development of both single and multiple “traditional” and “non-traditional”
restaurant locations. As compared to traditional restaurants, non-traditional restaurants generally occupy a
smaller retail space, offer no or very limited seating, may cater to a captive audience, have a limited menu, and
possibly have reduced services, labor and storage and different hours of operation. Both new and existing
franchisees may enter into a development agreement, which requires the franchisee to develop one or more
Arby’s restaurants in a particular geographic area or at a specific site within a specific time period. All
franchisees are required to execute standard franchise agreements. ARG’s standard U.S. franchise agreement for
new Arby’s traditional restaurant franchises currently requires an initial $37,500 franchise fee for the first
franchised unit, $25,000 for each subsequent unit and a monthly royalty payment equal to 4.0% of restaurant
sales for the term of the franchise agreement. ARG’s non-traditional restaurant franchise agreement requires an
initial $12,500 franchise fee for the first and all subsequent units, and a monthly royalty payment ranging
from 4.0% to 6.8%, depending upon the non-traditional restaurant category. Franchisees of traditional
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