4288 West Dublin-Granville Road
With $1.9 billion in sales and 5,100 restaurants worldwide, Wendy's International, Inc., is one of the top three restaurant chains in the world. Wendy's hallmark square hamburgers and homey atmosphere were introduced in Columbus, Ohio, in 1969, and the company has enjoyed phenomenal growth in the three decades since that time.
Dave Thomas Enters the Restaurant Business
The restaurant was created by R. David Thomas, who has credited part of his success to his challenging youth. Thomas was born during the depths of the Great Depression in Atlantic City, New Jersey. His early life was punctuated by tragedy. Abandoned at birth, he was adopted by a Michigan couple, Rex and Auleva Thomas. Auleva died when David was five years old, and his father was forced to move from state to state seeking work as a handyman. Rex remarried three times and moved his family ten times over the next eight years.
David himself entered the world of work at the age of 12, delivering groceries in Knoxville, Tennessee. He lied about his age to circumvent child labor laws, and worked 12-hour shifts to keep his job. Thomas' adulthood began early. When he was 15, his family moved to Fort Wayne, Indiana, and he started work as a busboy at a local restaurant, the Hobby House. When his family announced another move, Thomas elected to set out on his own, taking a room at the local YMCA. As his work began to demand more time than his education, Thomas gave up on the latter, leaving school after the tenth grade and later enlisting in the army. Trained as a cook in the military, he returned to a job behind the grill of the Hobby House, where he met Lorraine, a waitress--and his future wife.
Thomas entered the restaurant business in earnest in 1956 in partnership with Phil Clauss. Just a few years later, Thomas and Clauss met Colonel Harland Sanders, who offered them Kentucky Fried Chicken (KFC) franchises. Clauss purchased one for Fort Wayne, and the pair broke into the chicken business.
By 1962 Clauss was deep into KFC--he owned four unprofitable franchises in Columbus, Ohio, and needed someone to turn them around. If Thomas could turn the stores' $200,000 deficit into a profit, Clauss promised him a 45 percent share of the Columbus franchises. Against the advice of Colonel Sanders, who had become a mentor, Thomas took the challenge. He cut the menu from 100 items down to just a few--Thomas urged the Colonel to concentrate on chicken alone--improved the chicken "bucket," bartered radio advertising with buckets of chicken, invented KFC's spinning bucket sign, and built four additional locations in less than six years. His earnest, imaginative work paid off; Thomas was promoted to regional operations director of KFC and sold his stake in the Columbus restaurants for $1.5 million in 1968, thereby reaching millionaire status by the age of 35.
Wendy's is Born in the 1970s
Thomas parlayed his windfall into a new venture named after his eight-year-old daughter Melinda Lou, or Wendy, as her brothers and sisters nicknamed her. The first restaurant was located on Broad Street in downtown Columbus, Ohio. Its menu featured made-to-order hamburgers, "secret recipe" chili, french fries, soft drinks, and the Frosty frozen dessert. Thomas kept the menu simple to save labor costs, remembering his KFC experience. The Wendy's Old Fashioned Hamburgers decor differed from other fast food joints that abounded with easy-clean vinyl and tiled surfaces. Instead, Thomas put in tiffany-style lamps, bentwood chairs, carpeting, and tabletops embellished with vintage newspaper advertisements. Although his ideas were refreshingly original, some industry experts criticized Thomas' use of expensive fresh beef and noted that the fast food industry seemed overcrowded. With all the criticism, Thomas hoped only for a local chain that would provide his children with summer jobs.
Against all predictions, the business took off immediately. Thomas opened a second location just one year later and began franchising his idea in 1972. Wendy's soon enlisted franchisees at the rate of ten per month. Thomas added a new wrinkle to the franchising concept, giving geographic licenses, rather than single-store rights. Wendy's also commenced its first advertising campaign that year with locally broadcast "C'mon to Wendy's" spots. The 30-second, animated ads stressed Wendy's superiority through the "Quality Is Our Recipe" slogan and featured a red-haired, pig-tailed "Wendy" with dancing hamburgers.
The 1970s heralded phenomenal, and somewhat reckless, growth at Wendy's. By the end of 1974 the chain's net income topped $1 million, and total sales reached almost $25 million. In mid-1975 the business celebrated the opening of its 100th restaurant, and that fall Wendy's opened its first international restaurant, located in Canada. Wendy's went public in 1976 with an offering of one million common shares valued at $28 per share. By the end of the year, shareholders understood that their money fueled growth; Wendy's opened its 500th shop.
The chain's rapid expansion was supported by Wendy's first national advertising campaign in 1977. The effort earned Wendy's another entry in the history books: it became the first chain with less than 1,000 restaurants to launch network television commercials. The "Hot 'n Juicy" campaign ran for three years and won a Clio Award for creativity, setting the pace for future Wendy's advertising.
Before the decade's end, the restaurant chain set even more records. In 1978, the 1,000th Wendy's opened, in Springfield, Tennessee, not far from the site of Thomas' first job. By the next year the number of shops had increased by half, and the first European Wendy's opened in Munich, West Germany. In November 1979 Wendy's celebrated its tenth birthday with many "firsts" to flaunt. Wendy's was the first in its industry to surpass $1 billion in annual sales within its initial ten years, in addition to reaching the 1,000th restaurant opening faster than any of its competitors. It boasted 1,767 sites in the United States, Canada, Puerto Rico, and Europe, and had opened more than 750 restaurants from February 1978 to November 1979, averaging nearly 1.5 each day.
In the early 1980s, growth slowed slightly from that hectic pace, but Wendy's was distinguished from its competitors through celebrated advertising and winning menu additions. "Wendy's Has the Taste," the first ad of the decade, depicted customers and employees singing a catchy jingle. The ad emphasized Wendy's new chicken sandwich and all-you-can-eat salad bar. The chain had introduced its "Garden Spot" in 1979 over Thomas's protestations, becoming the first national restaurant chain to offer salad bars nationwide.
Founder Dave Thomas made his first appearance as Wendy's spokesperson in 1981 in a controversial ad titled, "Ain't No Reason (to go anyplace else)." Customers' use of the idiomatic double negative "ain't no" in the ads generated national attention for the chain, though not all of it favorable. Thomas left his position as CEO in 1982, taking the title of senior chairman. After working for more than 30 years, Thomas felt that he had earned a break, and was confident that he had hired capable managers to carry on his work.
Mixed Results in the 1980s
A recession in the early 1980s, combined with high beef prices and Wendy's explosive&mdash well as threatening--growth incited the "burger wars." Wendy's moved into the number three spot behind McDonald's and Burger King Corp., fueled by its introduction of a chainwide salad bar, chicken breast sandwiches, and baked potatoes. Burger King and McDonald's responded with moderately successful menu extensions of their own, then moved to a hard-nosed ad campaign. Burger King fired the first shot, but Wendy's responded with a string of hard-hitting, well-known commercials.
In 1983 Wendy's ads depicted "victims" of other hamburger restaurants, humorously bemoaning the long waits endured in indoor and drive-up lines for frozen hamburger patties. In 1984 Wendy's agency, Dancer Fitzgerald Sample, teamed up with celebrated commercial director Joe Sedelmaier on a campaign that registered the highest consumer awareness levels in the advertising industry's history, in addition to captivating judges at the 1984 Clio Awards and winning three of the industry's highest honors. Moreover, the "Where's the Beef?" campaign consisted of four network television spots starring senior citizen Clara Peller. It was voted the most popular commercial in America in 1984. One of the ads, "Parts Is Parts," pointed out the difference between the competition's pressed chicken patties and Wendy's chicken breast filet sandwiches.
"Parts" focused on Wendy's true money-makers at that point; hamburger sales actually only accounted for 40 percent of the chain's revenues. Much of Wendy's sales growth could be credited to such menu extensions as the grilled chicken sandwich, Garden Spot salad bar, and stuffed baked potatoes. These new products and the phenomenal success of the "Where's the Beef?" campaign catapulted Wendy's to a record $76.2 million earnings in 1985.
As one unnamed Wendy's executive confessed in Barron's, management started to believe that everything they touched would "turn to gold." Unfortunately, 1985 marked a summit from which Wendy's quickly plummeted. In 1986 the chain introduced sit-down breakfasts featuring omelettes and French toast. The new breakfasts involved a huge investment of capital and labor, and could not be served quickly enough to fit in with the fast food format. At the same time, McDonald's, Burger King, and Hardee's assaulted Wendy's on the hamburger front.
A kind of domino effect plunged the company toward a $4.9 million loss in 1986. Some of the chain's original franchisees sold their stores to new owners who flouted Wendy's high standards. Others became absentee managers, leaving the day-to-day supervision to employees. As standards of cleanliness, quality, and service slipped at some Wendy's locations, sales dropped. In response to the falling income, store labor was cut, the morale of those who remained plunged, and turnover rates began to explode. By the end of the year, 20 percent of Wendy's restaurants were nearing failure, and franchisees presented the chain's management a vote of no confidence.
The desperate situation brought Dave Thomas out of semi-retirement and challenged one of Wendy's most successful franchisees to revive the failing business. James W. Near had been one of Dave Thomas's competitors in the late 1960s when they both operated restaurants in Columbus. Practically raised in his father's White Castle hamburger chain, Near built a 50-unit Burger Boy Food-A-Rama chain of his own by the end of the decade. Near had become a Wendy's franchisee in 1974, opening 39 successful restaurants in West Virginia and Florida within four years. In 1978, he sold the restaurants back to Wendy's and established Sisters Chicken & Biscuits as an expansion vehicle for the hamburger chain. Sisters became a subsidiary of Wendy's in 1981 and was sold to its largest franchise owner in 1987.
New Leadership Rejuvenates Wendy's in the Late 1980s
James Near agreed to take the position of president and chief operating officer on the condition that Dave Thomas would sustain an active role in the company as a spokesman and traveling mentor. Thomas agreed. His new business card read "Founder and Jim's Right Hand Man." Near's turnaround strategy started with an internal reorganization. Weak stores were eliminated and a new building design lowered the initial franchise investment. Near fired four top managers, cut 700 administrative positions, and revamped field operations. New programs gave the remaining employees a vested interest in the chain's success: base pay, benefits, and bonuses were raised; an employee stock option called "We Share" made workers shareholders; and standardized training gave all employees a new perspective on their jobs. When Near took over, Wendy's was replacing employees at a rate of 55 percent a year; six years later, turnover stood at 20 percent.
With renewed chainwide standards for cleanliness and customer service, Near turned his attention to the menu. Changes were based on several industry trends, including discount pricing, consumer health concerns, and premium menu items. Spurred by the recession of the late 1980s and early 1990s, many fast food chains established discount pricing to appeal to more frugal customers. Wendy's introduced its Super Value Menu in 1989. The daily feature included seven 99-cent items, allowing it to appeal to thrifty consumers without issuing profit-eating coupons. An expanded salad bar and skinless chicken breast sandwich catered to more health conscious consumers, while the Big Classic, Dave's Deluxe, and Chicken Cordon Bleu specialty sandwiches appealed to Wendy's traditional hearty eaters.
As Near worked to cover all of the menu bases, Dave Thomas returned to the television studio for the promotional push. In 1989 Thomas reappeared in commercials offering customers a special money-back guarantee if they didn't concur that Wendy's had the best-tasting hamburgers in the industry. The ad was supported by one of the largest testimonial advertising campaigns in television history. Local residents in about 100 U.S. markets pronounced Wendy's burgers best.
"Old Fashioned Guy," the next series of TV spots, featured Thomas declaring, "Our hamburgers are the best in the business, or I wouldn't have named the place after my daughter." The hamburgers might have been the best, but Thomas' performances in these spots earned some poor ratings from some critics at Advertising Age, one of whom commented that he looked like "a steer in a half-sleeved shirt." Thomas himself admitted that he wasn't an ideal subject--he joked that it took two hours to get the expression "muchas gracias" right for one commercial. Unlike the critics, however, consumers gave Thomas an enthusiastic reception--his promotions have earned Wendy's highest advertising awareness figures since the "Where's the Beef?" campaign and have been credited with boosting the chain's turnaround. In fact, such campaigns have even helped earn Thomas the designation, "the Colonel Sanders of Wendy's," in reference to the promotional efforts of Thomas's early mentor.
The success of Wendy's revitalization showed in sales, rejuvenated expansion, and widespread recognition of the accomplishment. Despite a lingering recession, in 1991 and 1992 Wendy's had outperformed the industry with 24 consecutive months of same-store sales gains. Earnings increased steadily in the early 1990s to $78 million in 1993, the fourth consecutive year of 20 percent earnings growth. Wendy's five-year average earnings-per-share growth hit 58 percent, more than four times that of MacDonalds for the same period. Representing an irrefutable confirmation of Wendy's successful turnaround, 1995 earnings rose above the company's 1985 high of $.82 a share to reach $.94 per share.
The 1990s and Beyond
In the early 1990s expansion picked up once again. The company opened its 4,000th restaurant in 1992, and projected another 1,000 openings by mid-decade. Within the United States, the company planned to be opening approximately 400 stores a year by 1996. However, Wendy's plans also targeted international growth, where opportunities for expansion were infinitely better than those in the saturated American market.
Near and Thomas accumulated numerous awards in recognition of the dramatic turnaround at Wendy's. In 1989, Near was given the title of CEO and was named chairman two years later. Moreover, he was honored by his colleagues in the restaurant industry when he was named Operator of the Year by Nation's Restaurant News and Executive of the Year by Restaurants & Institutions. Restaurant Business acknowledged both men's entrepreneurial efforts with its annual Leadership Awards. Thomas also received the Horatio Alger Award, named for the author who popularized the concept of the "self-made man."
As Wendy's "ambassador," Thomas began spending most of his time traveling to and from book promotions, public appearances, and franchise openings. His promotional work complemented Near's continuing efforts to "grow the company." A new corporate theme, "Do It Right! Performance Pays!" related customer-responsiveness to sales and profits for worker-shareholders.
Wendy's recovery seemed well-established in the mid-1990s, judged not just by the numbers but by public opinion as well. Consumer polls in 1994 judged Wendy's to have the best food in the fast food burger business, the best menu variety, and the most pleasant atmosphere. Restaurants and Institutions gave Wendy's its overall top rating from 1988 to 1994, putting it ahead of eight other burger chains. Montgomery Securities analyst Michael Mueller told Financial World in 1995, "They're doing everything one should in the fast-food industry."
Having brought Wendy's to this high point, Near decided to step down in late 1994. He was replaced by Gordon Teter, who had served Wendy's as senior vice-president for three years and chief operating officer for four. Before joining Wendy's, Teter had accumulated 25 years of experience at the restaurant chains Arthur Treacher's, Casa Lupita, and Red Robin. His strengths were regarded by many as exactly what Wendy's needed to go the next step, that of stealing market share from the big guys. A firm believer in sticking to the basics, Teter was expected to apply his talents for cost control and well-regulated operations. "Once you have success, as we have been having here, people can get distracted," Teter explained to Financial World in 1995. "The biggest thing we have to do is maintain a sense of discipline," he noted.
Teter had a tough act to follow. Wendy's phenomenal growth slowed somewhat in the mid-1990s. In 1994 same-store sales dropped to 2.7 percent in first nine months of that year, compared to the quarter-to-quarter rate of five percent for the previous few years. Because fast-food profits were much higher overseas, Wendy's saw foreign expansion as a way to keep growth and profitability up.
In 1995, Wendy's aggressive foreign expansion plan called for the company to open at least 150 new restaurants a year around the world. Most store openings, however, were planned for Latin America, the Far East, and Canada. Wendy's previous attempt to expand overseas, in the early to mid-1980s, was a flop. Wendy's changed its decor and food to suit local tastes, but in less than a decade many of its foreign sites were floundering. Teter told Financial World in 1995 that after making every mistake you can make, Wendy's would stick to basics: "We just can't get diverted to things that sound sexy and look attractive."
As part of its expansion plan, Wendy's acquired the privately owned Canadian restaurant chain Tim Horton's. Canada's largest coffee and baked goods chain exchanged all outstanding shares of its stock for 16.2 million shares of Wendy's stock and the assumption of its $125 million in debt. The acquisition strengthened Wendy's presence in Canada, bringing the total number of its restaurants in that country to 1,186. Wendy's had been experimenting with sites that combined Wendy's and Tim Horton's restaurants since 1992. Their success led Wendy's to plan on opening 30 more such sites a year after the merger. In addition, in 1996, Wendy's bought out Hardee's restaurants in the northern tier of states, strengthening the company's position there as well.
Wendy's also continued to invest in its successful, homespun ads featuring Dave Thomas. The "Letters to Dave" campaign, focusing on the restaurant's Super Value Menu and featuring customers' letters to the restaurateur, paired Thomas with soap opera star Susan Lucci. In another series, Dave joined Olympic gold medalist Kristi Yamaguchi to participate in such winter sports as pairs figure skating and ski jumping. Although long-known for its popular ad campaigns, Wendy's spent only $80 million on advertising in 1994, one-fifth what MacDonalds spent. Still, Wendy's brand recognition trailed that of MacDonalds by only a few points.
As Wendy's moved into the late 1990s, management focused on maintaining the momentum the company had generated in the early 1990s, with an emphasis on street-level operations, marketing, and efficient administration. Continued expansion remained a priority as well. Wendy's numbered 5,100 stores in 1997, up from 4,500 in 1994. Teter said to Financial World that he and Dave Thomas saw 8,000 restaurants doing $10 billion in sales by the year 2002: "That's our goal."
Principal Subsidiaries: Wendy's Restaurants of Canada, Inc.; The New Bakery Co. of Ohio, Inc.
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