Wendy's 2015 Annual Report Download - page 11

set forth in a Single Unit Sub-Franchise Agreement. This document provides the franchisee the right to construct,
own and operate a Wendy’s restaurant upon a site accepted by WROC and to use the Wendy’s system in connection
with the operation of the restaurant at that site. The Single Unit Sub-Franchise Agreement provides for a 20-year
term and a 10-year renewal subject to certain conditions. The sub-franchisee pays to WROC a monthly royalty of 4%
of sales, as defined in the agreement, from the operation of the restaurant or C$1,000, whichever is greater. The
agreement also typically requires that the franchisee pay WROC an initial technical assistance fee. The standard
technical assistance fee is currently C$40,000 for each restaurant.
In order to promote Image Activation new restaurant development, Wendy’s has an incentive program for
franchisees that provides for reductions in royalty payments for the first three years of operation for qualifying new
restaurants opened by December 31, 2016. Wendy’s also has incentive programs for franchisees that commence
Image Activation restaurant remodels during 2016 and 2017. The remodel incentive programs provide reductions in
royalty payments for one year or two years after the completion of construction depending upon the type of remodel.
In 2015, Wendy’s added an additional incentive to the 2016 remodel program described above to include waiving the
franchise agreement renewal fee for certain types of remodels. In addition, Wendy’s also had incentive programs that
included reductions in royalty payments in 2015 and 2014 as well as cash incentives for franchisees’ participation in
Wendy’s Image Activation program throughout 2014 and 2013.
In addition to the Image Activation incentive programs described above, Wendy’s executed an agreement to
partner with a third-party lender to establish a financing program for franchisees that participate in our Image
Activation program. Under the program, the lender has agreed to provide loans to franchisees to be used for the
reimaging of restaurants according to the guidelines and specifications under the Image Activation program.
See “Management Discussion and Analysis—Liquidity and Capital Resources—Guarantees and Other
Contingencies” in Item 7 herein, for further information regarding guarantee obligations.
Franchised restaurants are required to be operated under uniform operating standards and specifications relating
to the selection, quality and preparation of menu items, signage, decor, equipment, uniforms, suppliers, maintenance
and cleanliness of premises and customer service. Wendy’s monitors franchisee operations and inspects restaurants
periodically to ensure that required practices and procedures are being followed.
See Note 7 and Note 21 of the Financial Statements and Supplementary Data included in Item 8 herein, and
the information under “Management’s Discussion and Analysis” in Item 7 herein, for further information regarding
reserves, commitments and contingencies involving franchisees.
Advertising and Marketing
In the United States and Canada, Wendy’s advertises nationally through national advertising funds on network
and cable television programs, including nationally televised events. Locally in the United States and Canada,
Wendy’s primarily advertises through regional network and cable television, radio and newspapers. Wendy’s
participates in two national advertising funds established to collect and administer funds contributed for use in
advertising through television, radio, newspapers, the Internet and a variety of promotional campaigns, including the
increasing use of social media. Separate national advertising funds are administered for Wendy’s United States and
Canadian locations. Contributions to the national advertising funds are required to be made from both
company-owned and franchised restaurants and are based on a percent of restaurant retail sales. In addition to the
contributions to the national advertising funds, Wendy’s requires additional contributions to be made for both
company-owned and franchised restaurants based on a percent of restaurant retail sales for the purpose of local and
regional advertising programs. Required franchisee contributions to the national advertising funds and for local and
regional advertising programs are governed by the Wendy’s Unit Franchise Agreement in the United States and by the
Single Unit Sub-Franchise Agreement in Canada. Required contributions by company-owned restaurants for
advertising and promotional programs are at the same percent of retail sales as franchised restaurants within the
Wendy’s system. As of January 3, 2016, the contribution rate for United States restaurants was generally 3.5% of
retail sales for national advertising and 0.5% of retail sales for local and regional advertising. The contribution rate for
Canadian restaurants is generally 3% of retail sales for national advertising and 1% of retail sales for local and regional
advertising, with the exception of Quebec, for which there is no national advertising contribution rate and the local
and regional advertising contribution rate is 4.0% of retail sales. See Note 24 of the Financial Statements and
Supplementary Data included in Item 8 herein, for further information regarding advertising.
8