Wendy's 2013 Annual Report Download - page 12

See Note 5 and Note 20 of the Financial Statements and Supplementary Data included in Item 8 herein, and
the information under “Management’s Discussion and Analysis” in Item 7 herein, for further information regarding
reserves, commitments and contingencies involving franchisees.
Advertising and Marketing
In the United States and Canada, Wendy’s advertises nationally through national advertising funds on network
and cable television programs, including nationally televised events. Locally in the United States and Canada,
Wendy’s primarily advertises through regional network and cable television, radio and newspapers. Wendy’s
participates in two national advertising funds established to collect and administer funds contributed for use in
advertising through television, radio, newspapers, the Internet and a variety of promotional campaigns, including the
increasing use of social media. Separate national advertising funds are administered for Wendy’s United States and
Canadian locations. Contributions to the national advertising funds are required to be made from both
company-owned and franchised restaurants and are based on a percent of restaurant retail sales. In addition to the
contributions to the national advertising funds, Wendy’s requires additional contributions to be made for both
company-owned and franchised restaurants based on a percent of restaurant retail sales for the purpose of local and
regional advertising programs. Required franchisee contributions to the national advertising funds and for local and
regional advertising programs are governed by the Wendy’s Unit Franchise Agreement in the United States and by the
Single Unit Sub-Franchise Agreement in Canada. Required contributions by company-owned restaurants for
advertising and promotional programs are at the same percent of retail sales as franchised restaurants within the
Wendy’s system. The contribution rate for United States restaurants during 2013 generally was 3.25% of retail sales
for national advertising and 0.75% of retail sales for local and regional advertising. As of January 1, 2014, the rates
generally became 3.50% and 0.50%, respectively. The contribution rate for Canadian restaurants is generally 3% of
retail sales for national advertising and 1% of retail sales for local and regional advertising. See Note 23 of the
Financial Statements and Supplementary Data included in Item 8 herein, for further information regarding
advertising.
International Operations and Franchising
As of December 29, 2013, Wendy’s had 399 franchised restaurants in 27 countries and territories other than
the United States and Canada. Wendy’s intends to grow its international business aggressively, yet responsibly. Since
the beginning of 2009, development agreements have been announced for Wendy’s locations to be opened in the
following countries and territories: Singapore, the Middle East, North Africa, the Russian Federation, the Eastern
Caribbean, Argentina, Japan, Georgia, the Republic of Azerbaijan, Ecuador and Chile. These development
agreements include rights for 22 countries in which no Wendy’s restaurants were open as of December 29, 2013. In
addition to new market expansion, further development within existing markets will continue to be an important
component of Wendy’s international strategy over the coming years. Wendy’s has granted development rights in
certain countries and territories listed under Item 2 of this Form 10-K.
Franchisees who wish to operate Wendy’s restaurants outside the United States and Canada enter into
agreements with Wendy’s that generally provide franchise rights for each restaurant for an initial term of 10 years or
20 years, depending on the country, and typically include a 10-year renewal provision, subject to certain conditions.
The agreements license the franchisee to use the Wendy’s trademarks and know-how in the operation of a Wendy’s
restaurant at a specified location. Generally, the franchisee pays Wendy’s an initial technical assistance fee or other per
restaurant fee and monthly fees based on a percentage of gross monthly sales of each restaurant. In certain foreign
markets, Wendy’s may grant the franchisee exclusivity to develop a territory in exchange for the franchisee
undertaking to develop a specified number of new Wendy’s restaurants in the territory based on a negotiated
schedule. In these instances, the franchisee generally pays Wendy’s an upfront development fee, annual development
fees or a per restaurant fee. In certain circumstances, Wendy’s may grant a franchisee the right to sub-franchise in a
stated territory, subject to certain conditions.
Wendy’s also continually evaluates non-franchise opportunities for development of Wendy’s restaurants in
other international markets, including through joint ventures with third parties and opening company-owned
restaurants.
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