Wendy's 2010 Annual Report Download - page 11

Generally, Wendy’s does not sell food or supplies, other than sandwich buns and kids’ meal toys, to its
franchisees. However, prior to 2010, Wendy’s arranged for volume purchases of many food and supply
products. Commencing in 2010, the purchasing function was transferred to a new purchasing co-op as described
below in “Raw Materials and Purchasing.”
The New Bakery Co. of Ohio, Inc. (the “Bakery”), a 100% owned subsidiary of Wendy’s, is a producer of buns
for some Wendy’s restaurants, and to a lesser extent for other outside parties, including one distributor to the Arby’s
system. At January 2, 2011, the Bakery supplied 709 restaurants operated by Wendy’s and 2,551 restaurants operated
by franchisees. As of that date, the Bakery also directly supplied 10 Arby’s restaurants on a test basis. The Bakery also
manufactures and sells some products to customers in the grocery and other food service businesses.
Raw Materials and Purchasing
As of January 2, 2011, 5 independent processors (6 total production facilities) supplied all of Wendy’s
hamburger in the United States. In addition, 5 independent processors (7 total production facilities) supplied all of
Wendy’s chicken in the United States.
Wendy’s and its franchisees have not experienced any material shortages of food, equipment, fixtures or other
products that are necessary to maintain restaurant operations. Wendy’s anticipates no such shortages of products and
believes that alternate suppliers are available. Suppliers to the Wendy’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.
During the 2009 fourth quarter, Wendy’s entered into a purchasing co-op relationship agreement (the “Co-op
Agreement”) to establish a new Wendy’s purchasing co-op, Quality Supply Chain Co-op, Inc. (“QSCC”). QSCC
manages food and related product purchases and distribution services for the Wendy’s system in the United States
and Canada. Through QSCC, Wendy’s and Wendy’s franchisees purchase food, proprietary paper and operating
supplies under national contracts with pricing based upon total system volume.
QSCC’s supply chain management facilitates the continuity of supply and provides consolidated purchasing
efficiencies while monitoring and seeking to minimize possible obsolete inventory throughout the Wendy’s North
America supply chain. The system’s purchasing function for 2009 and prior was performed and paid for by
Wendy’s. In order to facilitate the orderly transition of the 2010 purchasing function for North America operations,
Wendy’s transferred certain contracts, assets and certain Wendy’s purchasing employees to QSCC in the first quarter
of 2010. Pursuant to the terms of the Co-op Agreement, Wendy’s was required to pay $15.5 million to QSCC over
an 18 month period through May 2011 in order to provide funding for start-up costs, operating expenses and cash
reserves. In addition to the initial funding by Wendy’s, since the third quarter of 2010 all QSCC members (including
Wendy’s) began paying sourcing fees on products sourced through QSCC. Such sourcing fees will be the primary
means of funding QSCC’s operations after the initial funding by Wendy’s is completed.
During the 2010 second quarter, QSCC and ARCOP, Inc. (“ARCOP”), Arby’s independent purchasing
cooperative, in consultation with Wendy’s/Arby’s Restaurants, established the Strategic Sourcing Group Co-op, LLC
(“SSG”). SSG was formed to manage and operate purchasing programs which combine the purchasing power of both
Wendy’s and Arby’s company-owned and franchised restaurants to create buying efficiencies for certain
non-perishable goods, equipment and services.
In order to facilitate the orderly transition of this purchasing function for the Companies’ North America
operations, Wendy’s/Arby’s Restaurants transferred certain contracts, assets and certain Wendy’s/Arby’s Restaurants
purchasing employees to SSG in the second quarter of 2010. Wendy’s/Arby’s Restaurants had committed to pay
approximately $5.2 million of SSG expenses, which was expensed in 2010 and was to be paid over a 24 month period
through March 2012. We made payments of $2.0 million in 2010.
Should a sale of Arby’s occur as discussed in “The Arby’s Restaurant System” herein, under the change of
control provisions in the agreement that established SSG, the activities of SSG would be wound up. In the wind up
process, the assets, personnel and functions of SSG would be transferred to QSCC and ARCOP as such parties and
Wendy’s/Arby’s Restaurants agree. In contemplation of a possible sale, the parties are in discussion regarding the
dissolution of SSG and transferring SSG’s assets, personnel and functions to QSCC and ARCOP.
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