Wendy's 2008 Annual Report Download - page 26

ARG does not exercise ultimate control over purchasing for Arby’s restaurant system, which could
harm sales and the Arby’s brand.
Although ARG ensures that all suppliers to the Arby’s system meet quality control standards, Arby’s
franchisees control the purchasing of food, proprietary paper, equipment and other operating supplies from
such suppliers through ARCOP, Inc., a not-for-profit entity controlled by Arby’s franchisees. ARCOP
negotiates national contracts for such food, equipment and supplies. ARG is entitled to appoint one
representative on the board of directors of ARCOP and participate in ARCOP through its company-owned
restaurants, but otherwise does not control the decisions and activities of ARCOP except to ensure that all
suppliers satisfy Arby’s quality control standards. If ARCOP does not properly estimate the product needs of
the Arby’s system, makes poor purchasing decisions, or decides to cease its operations, system sales and
operating costs could be adversely affected and the financial condition of ARG or the financial condition of
Arby’s franchisees could be hurt.
Shortages or interruptions in the supply or delivery of perishable food products could damage the
Wendy’s and/or Arby’s brand reputation and adversely affect our operating results.
Each brand and its franchisees are dependent on frequent deliveries of perishable food products that meet
brand specifications. Shortages or interruptions in the supply of perishable food products caused by
unanticipated demand, problems in production or distribution, disease or food-borne illnesses, inclement
weather or other conditions could adversely affect the availability, quality and cost of ingredients, which could
lower our revenues, increase operating costs, damage brand reputation and otherwise harm our business and the
businesses of our franchisees.
Instances of mad cow disease or other food-borne illnesses, such as bird flu or salmonella, could
adversely affect the price and availability of beef, poultry or other meats and create negative publicity,
which could result in a decline in sales.
Instances of mad cow disease or other food-borne illnesses, such as bird flu, salmonella, e-coli or hepatitis
A, could adversely affect the price and availability of beef, poultry or other meats. Incidents may cause
consumers to shift their preferences to other meats. As a result, Wendy’s and/or Arby’s restaurants could
experience a significant increase in food costs if there are instances of mad cow disease or other food-borne
illnesses.
In addition to losses associated with higher prices and a lower supply of our food ingredients, instances of
food-borne illnesses could result in negative publicity for Wendy’s and/or Arby’s. This negative publicity, as
well as any other negative publicity concerning types of food products Wendy’s or Arby’s serves, may reduce
demand for Wendy’s and/or Arby’s food and could result in a decrease in guest traffic to our restaurants.
A decrease in guest traffic to our restaurants as a result of these health concerns or negative publicity could
result in a decline in sales at company-owned restaurants or in royalties from sales at franchised restaurants.
Changes in consumer tastes and preferences and in discretionary consumer spending could result in a
decline in sales at company-owned restaurants and in the royalties that we receive from franchisees.
The quick service restaurant industry is often affected by changes in consumer tastes, national, regional
and local economic conditions, discretionary spending priorities, demographic trends, traffic patterns and the
type, number and location of competing restaurants. Our success depends to a significant extent on
discretionary consumer spending, which is influenced by general economic conditions and the availability of
discretionary income. Accordingly, we may experience declines in sales during economic downturns. Any
material decline in the amount of discretionary spending or a decline in consumer food-away-from-home
spending could hurt our revenues, results of operations, business and financial condition.
In addition, if company-owned and franchised restaurants are unable to adapt to changes in consumer
preferences and trends, company-owned and franchised restaurants may lose customers and the resulting
revenues from company-owned restaurants and the royalties that we receive from franchisees may decline.
The recent disruptions in the national and global economies and the financial markets may adversely
impact our revenues, results of operations, business and financial condition.
The recent disruptions in the national and global economies and financial markets, and the related
reductions in the availability of credit, have resulted in declines in consumer confidence and spending and have
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