Wendy's 2011 Annual Report Download - page 11

Additional competitive pressures for prepared food purchases come from operators outside the restaurant
industry. A number of major grocery chains offer fresh deli sandwiches and fully prepared food and meals to go as
part of their deli sections. Some of these chains also have in-store cafes with service counters and tables where
consumers can order and consume a full menu of items prepared especially for that portion of the operation.
Additionally, convenience stores and retail outlets at gas stations frequently offer sandwiches and other foods.
Quality Assurance
Wendy’s quality assurance program is designed to verify that the food products supplied to our restaurants are
processed in a safe, sanitary environment and in compliance with our food safety and quality standards. Wendy’s
quality assurance personnel conduct multiple on-site sanitation and production audits throughout the year at all of
our core menu product processing facilities, which include beef, poultry, pork, buns, french fries, Frosty™ dessert
ingredients, and produce. Animal welfare audits are also conducted every year at all beef, poultry, and pork facilities to
confirm compliance with our required animal welfare and handling policies and procedures. In addition to our facility
audit program, weekly samples of beef, poultry, and other core menu products from our distribution centers are
randomly sampled and analyzed by a third party laboratory to test conformance to our quality specifications. Each
year, Wendy’s representatives conduct unannounced inspections of all company and franchise restaurants to test
conformance to our sanitation, food safety, and operational requirements. Wendy’s has the right to terminate
franchise agreements if franchisees fail to comply with quality standards.
Acquisitions and Dispositions of Wendy’s Restaurants
Wendy’s has from time to time acquired the interests of and sold Wendy’s restaurants to franchisees. Wendy’s
intends to evaluate strategic acquisitions of franchised restaurants and strategic dispositions of company-owned
restaurants to existing and new franchisees. Wendy’s generally retains a right of first refusal in connection with any
proposed sale of a franchisee’s interest.
Franchised Restaurants
As of January 1, 2012, Wendy’s franchisees operated 4,827 Wendy’s restaurants in 49 states and Canada.
The rights and obligations governing the majority of franchised restaurants operating in the United States are
set forth in the Wendy’s Unit Franchise Agreement (non-traditional locations may operate under an amended
agreement). This document provides the franchisee the right to construct, own and operate a Wendy’s restaurant
upon a site accepted by Wendy’s and to use the Wendy’s system in connection with the operation of the restaurant at
that site. The Unit Franchise Agreement provides for a 20-year term and a 10-year renewal subject to certain
conditions. Wendy’s has in the past franchised under different agreements on a multi-unit basis; however, Wendy’s
now generally grants new Wendy’s franchises on a unit-by-unit basis.
The Wendy’s Unit Franchise Agreement requires that the franchisee pay a royalty of 4% of monthly sales, as
defined in the agreement, from the operation of the restaurant or $1,000, whichever is greater. The agreement also
typically requires that the franchisee pay Wendy’s a technical assistance fee. In the United States, the standard
technical assistance fee required under a newly executed Unit Franchise Agreement is currently $25,000 for each
restaurant.
The technical assistance fee is used to defray some of the costs to Wendy’s in providing technical assistance in
the development of the Wendy’s restaurant, initial training of franchisees or their operator and in providing other
assistance associated with the opening of the Wendy’s restaurant. In certain limited instances (like the regranting of
franchise rights or the relocation of an existing restaurant), Wendy’s may charge a reduced technical assistance fee or
may waive the technical assistance fee. Wendy’s does not select or employ personnel on behalf of franchisees.
Wendy’s Restaurants of Canada Inc. (“WROC”), a 100% owned subsidiary of Wendy’s, holds master franchise
rights for Canada. The rights and obligations governing the majority of franchised restaurants operating in Canada are
set forth in a Single Unit Sub-Franchise Agreement. This document provides the franchisee the right to construct,
own and operate a Wendy’s restaurant upon a site accepted by WROC and to use the Wendy’s system in connection
with the operation of the restaurant at that site. The Single Unit Sub-Franchise Agreement provides for a 20-year
term and a 10-year renewal subject to certain conditions. The sub-franchisee pays to WROC a monthly royalty of 4%
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