Wendy's 2009 Annual Report Download - page 42

decline in the real estate market, although that market has shown some improvement in recent
months;
•Continued and increasingly aggressive price competition in the QSR industry, as evidenced by
(1) value menus, which offer lower prices on some menu items, (2) the use of coupons and other
price discounting and (3) combination meal concepts, which offer a complete meal at an aggregate
price lower than the price of individual food and beverage items;
•Competitive pressures due to extended hours of operation by many QSR competitors, including
breakfast and late night hours;
•Competitive pressures from operators outside the QSR industry, such as the deli sections and in-
store cafes of major grocery and other retail store chains, convenience stores and casual dining
outlets offering take-out food;
•Increased availability to consumers of product choices, including (1) healthy products driven by a
greater consumer awareness of nutritional issues, (2) beverage programs which offer a wider
selection of premium non-carbonated beverages, including coffee and tea products, and
(3) sandwiches with perceived higher levels of freshness, quality and customization; and
•Competitive pressures from an increasing number of franchise opportunities seeking to attract
qualified franchisees.
Cost of Sales
•Decreasing commodity prices which have reduced our food costs in the second half of 2009;
•Federal, state and local legislative activity, such as minimum wage increases and mandated health
and welfare benefits which is expected to continue to increase wages and related fringe benefits,
including health care and other insurance costs; and
•Legal or regulatory activity related to nutritional content or menu labeling which results in
increased operating costs.
Other
•A significant portion of both our Wendy’s and Arby’s restaurants are franchised and, as a result,
we receive revenue in the form of royalties (which are generally based on a percentage of sales at
franchised restaurants), rent and other fees from franchisees. Arby’s franchisee related accounts
receivable and estimated reserves for uncollectibility have increased significantly, and may
continue to increase, as a result of the deteriorating financial condition of some of our franchisees.
The financial condition of a number of Arby’s franchisees resulted in a net decrease in the number
of franchised restaurants in 2009 and also affects franchisees’ ability to make required
contributions to national and local advertising programs; and
•Weakness in the overall credit markets, including availability in the lending markets typically
used to finance new unit development and remodels. Tightened credit conditions and economic
pressures have negatively impacted franchisees, including the ability of some franchisees to meet
their commitments under development, rental and franchise license agreements.
We experience these trends directly to the extent they affect the operations of our Company-owned
restaurants and indirectly to the extent they affect sales by our franchisees and, accordingly, the royalties and
franchise fees we receive from them.
Business Highlights
We believe there are significant opportunities to grow our business, strengthen our competitive position
and enhance our profitability through the execution of the following strategies:
•Grow same-store sales at Wendy’s and Arby’s by introducing innovative new menu items,
enhancing the customer experience with operational excellence, and improving affordability with
everyday value menu items;
•Continue to improve Wendy’s Company-owned restaurant margins;
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