Wendy's 2010 Annual Report Download - page 26

confidence, stabilize the markets or increase liquidity and the availability of credit. If we or our franchisees are unable
to obtain borrowed funds on acceptable terms, or if conditions in the economy and the financial markets do not
improve, our revenues, results of operations, business and financial condition could be adversely affected.
Additionally, we have entered into interest rate swaps and other derivative contracts as described in Note 12 to
the Financial Statements and Supplementary Data included in Item 8 herein, and we may enter into additional swaps
in the future. We are exposed to potential losses in the event of nonperformance by counterparties on these
instruments, which could adversely affect our results of operations, financial condition and liquidity.
Changes in commodity costs (including beef and chicken), supply, fuel, utilities, distribution and other
operating costs could harm results of operations.
Our profitability depends in part on our ability to anticipate and react to changes in commodity costs
(including beef and chicken), supply, fuel, distribution and other operating costs. Any increase in these costs,
especially beef or chicken prices, could harm operating results. In addition, each brand is susceptible to increases in
these costs as a result of other factors beyond its control, such as weather conditions, global demand, food safety
concerns, product recalls and government regulations. Additionally, prices for feed ingredients used to produce beef
and chicken could be adversely affected by changes in global weather patterns, which are inherently
unpredictable. Increases in gasoline prices would result in the imposition of fuel surcharges by our distributors, which
would increase our costs. Significant increases in gasoline prices could also result in a decrease in customer traffic at
our restaurants, which could adversely affect our business. We cannot predict whether we will be able to anticipate
and react to changing food costs by adjusting our purchasing practices and menu prices, and a failure to do so could
adversely affect our operating results. In addition, we may not seek to or be able to pass along price increases to our
customers.
Competition from other restaurant companies, or poor customer experience at Wendy’s or Arby’s restaurants,
could hurt our brands.
The market segments in which company-owned and franchised Wendy’s and Arby’s restaurants compete are
highly competitive with respect to, among other things, price, food quality and presentation, service, location,
convenience, and the nature and condition of the restaurant facility. If customers have a poor experience at a Wendy’s
or Arby’s restaurant, whether at a company-owned or franchised restaurant, we may experience a decrease in guest
traffic. Further, Wendy’s and Arby’s restaurants compete with a variety of locally-owned restaurants, as well as
competitive regional and national chains and franchises. Several of these chains compete by offering menu items that
are targeted at certain consumer groups or dietary trends. Additionally, many of our competitors have introduced
lower cost, value meal menu options. Our revenues and those of our franchisees may be hurt by this product and
price competition.
Moreover, new companies, including operators outside the quick service restaurant industry, may enter our
market areas and target our customer base. For example, additional competitive pressures for prepared food purchases
have come from deli sections and in-store cafes of a number of major grocery store chains, as well as from convenience
stores and casual dining outlets. Such competitors may have, among other things, lower operating costs, better
locations, better facilities, better management, better products, more effective marketing and more efficient
operations. Many of our competitors have substantially greater financial, marketing, personnel and other resources
than we do, which may allow them to react to changes in pricing and marketing strategies in the quick service
restaurant industry better than we can. Many of our competitors spend significantly more on advertising and
marketing than we do, which may give them a competitive advantage through higher levels of brand awareness among
consumers. All such competition may adversely affect our revenues and profits by reducing revenues of company-
owned restaurants and royalty payments from franchised restaurants.
Current restaurant locations may become unattractive, and attractive new locations may not be available for a
reasonable price, if at all.
The success of any restaurant depends in substantial part on its location. There can be no assurance that our
current restaurant locations will continue to be attractive as demographic patterns change. Neighborhood or
economic conditions where our restaurants are located could decline in the future, thus resulting in potentially
reduced sales in those locations. In addition, rising real estate prices in some areas may restrict our ability and the
ability of franchisees to purchase or lease new desirable locations. If desirable locations cannot be obtained at
reasonable prices, each brand’s ability to execute its growth strategies will be adversely affected.
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