Wendy's 2012 Annual Report Download - page 9

competes with other restaurant companies and food outlets, primarily through the quality, variety, convenience, price,
and value perception of food products offered. The number and location of units, quality and speed of service,
attractiveness of facilities, effectiveness of marketing and new product development by Wendy’s and its competitors
are also important factors. The price charged for each menu item may vary from market to market (and within
markets) depending on competitive pricing and the local cost structure. Wendy’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.
Wendy’s competitive position is differentiated by a focus on quality, its use of fresh, never frozen ground beef in
the United States and Canada and certain other countries, its unique and diverse menu, its promotional products, its
choice of condiments and the atmosphere and decor of its restaurants. Wendy’s has initiated an Image Activation
program, which includes innovative exterior and interior restaurant designs, and plans to accelerate that program in
2013 and beyond.
Many of the leading restaurant chains continue to focus on new unit development as one strategy to increase
market share through increased consumer awareness and convenience. This results in 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, including the use of coupons, in the quick service restaurant industry and the emphasis
on value menus has had and could continue to have an adverse impact on Wendy’s. In addition, we believe that the
growth of fast casual chains and other in-line competitors causes 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 high quality sandwiches made with fresh ingredients
and artisan breads and there are several emerging restaurant chains featuring high quality food served at in-line
locations. 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.
Quality Assurance
Wendy’s quality assurance program is designed to verify that the food products supplied to our restaurants are
processed in a safe, sanitary environment and in compliance with our food safety and quality standards. Wendy’s
quality assurance personnel conduct multiple on-site sanitation and production audits throughout the year at all of
our core menu product processing facilities, which include beef, poultry, pork, buns, french fries, FrostyTM dessert
ingredients, and produce. Animal welfare audits are also conducted every year at all beef, poultry, and pork facilities to
confirm compliance with our required animal welfare and handling policies and procedures. In addition to our facility
audit program, weekly samples of beef, poultry, and other core menu products from our distribution centers are
randomly sampled and analyzed by a third party laboratory to test conformance to our quality specifications. Each
year, Wendy’s representatives conduct unannounced inspections of all company and franchise restaurants to test
conformance to our sanitation, food safety, and operational requirements. Wendy’s has the right to terminate
franchise agreements if franchisees fail to comply with quality standards.
Acquisitions and Dispositions of Wendy’s Restaurants
Wendy’s has from time to time acquired the interests of and sold Wendy’s restaurants to franchisees. Wendy’s
intends to evaluate strategic acquisitions of franchised restaurants and strategic dispositions of company-owned
restaurants to existing and new franchisees. Wendy’s generally retains a right of first refusal in connection with any
proposed sale of a franchisee’s interest.
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