Wendy's 2008 Annual Report Download - page 17

ARCOP, Inc., a not-for-profit purchasing cooperative, negotiates contracts with approved suppliers on
behalf of ARG and Arby’s franchisees. Suppliers to the Arby’s system must comply with United States
Department of Agriculture (“USDA”) and United States Food and Drug Administration (“FDA”) regulations
governing the manufacture, packaging, storage, distribution and sale of all food and packaging products.
Franchisees may obtain other products, including food, ingredients, paper goods, equipment and signs, from
any source that meets ARG’s specifications and approval. Through ARCOP, ARG and Arby’s franchisees
purchase food, beverage, proprietary paper and operating supplies under national contracts with pricing based
upon total system volume.
Trademarks and Service Marks
ARG, through its subsidiaries, owns several trademarks that we consider to be material to our restaurant
business, including Arby’s, Arby’s Market Fresh, Market Fresh, Horsey Sauce, Sidekickersand
Roastburger.
ARG’s material trademarks are registered in the U.S. Patent and Trademark Office and various foreign
jurisdictions. Our registrations for such trademarks in the United States will last indefinitely as long as ARG
continues to use and police the trademarks and renew filings with the applicable governmental offices. There
are no pending challenges to ARG’s right to use any of its material trademarks in the United States.
Seasonality
Arby’s restaurant operations are not significantly impacted by seasonality. However, our restaurant
revenues are somewhat lower in our first quarter.
Competition
Arby’s faces direct and indirect competition from numerous well-established competitors, including
national and regional non-burger sandwich chains, such as Panera Bread, Subwayand Quiznos, as well as
hamburger chains, such as McDonald’s, Burger Kingand Wendy’s, and other quick service restaurant
chains, such as Taco Bell, Chick-Fil-Aand Kentucky Fried Chicken. In addition, Arby’s competes with
locally owned restaurants, drive-ins, diners and other similar establishments. Key competitive factors in the
quick service restaurant industry are price, quality of products, convenience, quality and speed of service,
advertising, brand awareness, restaurant location and attractiveness of facilities. Arby’s also competes within the
food service industry and the quick service restaurant sector not only for customers, but also for personnel,
suitable real estate sites and qualified franchisees.
Many of the leading restaurant chains have focused on new unit development as one strategy to increase
market share through increased consumer awareness and convenience. This has led to increased competition for
available development sites and higher development costs for those sites. Competitors also employ marketing
strategies such as frequent use of price discounting, frequent promotions and heavy advertising expenditures.
Continued price discounting in the quick service restaurant industry and the emphasis on value menus has had
and could continue to have an adverse impact on us. In addition, the growth of fast casual chains and other in-
line competitors could cause some fast food customers to “trade up” to a more traditional dining out experience
while keeping the benefits of quick service dining.
Other restaurant chains have also competed by offering higher quality sandwiches made with fresh
ingredients and artisan breads. Several chains have also sought to compete by targeting certain consumer
groups, such as capitalizing on trends toward certain types of diets (e.g., low carbohydrate or low trans fat) by
offering menu items that are promoted as being consistent with such diets.
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.
Many of our competitors have substantially greater financial, marketing, personnel and other resources
than we do.
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