Wendy’s International, Inc.

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Wendy’s International, Inc.

4288 West Dublin-Granville Rd.
Dublin, Ohio 43107-0256
U.S.A.
(614) 764-3100
Fax: (614) 764-6894

Public Company
Incorporated: 1975
Employees: 42,000
Sales: $3.61 billion
Stock Exchanges: Boston Midwest New York Pittsburgh
SICs: 6794 Patent Owners & Lessors; 5812 Eating Places

Wendy’s International, Inc. is one of the top three restaurant chains in the world. The chain has been touted as America’s favorite hamburger place for 14 years by Restaurants & Institution’s “Choice in Chains” annual consumer survey. Wendy’s hallmark square hamburgers and homey atmosphere were introduced in Columbus, Ohio, in 1969, and the company has enjoyed phenomenal growth in the quarter-century since that time.

The restaurant was created by R. David Thomas, an adoptee 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.

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 easyclean 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 1000 restaurants to launch network television commercials.“Hot ‘n Juicy” 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 1000th 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 of 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 one and one-half 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 chief executive 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.

A recession in the early 1980s, combined with high beef prices and Wendy’s explosive—as 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 unsuccessful 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 depicted victims of other hamburger restaurants with “Step Aside,” “Park It,” and “Frozen Stiff.” The ads humorously bemoaned 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. “Where’s the Beef?” 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 comprised 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, 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, the 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 the chain’s standards of cleanliness, quality, and service slipped, sales dropped. In response to the falling income, store labor was cut, while the morale of those left 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.

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 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. By 1991, turnover rates had decreased sharply.

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 includes 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 moneyback 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 earned poor ratings from the experts at Advertising Age, who said 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 “Where’s the Beef?” and have been credited with boosting the chain’s turnaround. They have even earned him the designation, “the Colonel Sanders of Wendy’s,” in reference to the promotional efforts of Thomas’ early mentor.

The success of Wendy’s revitalization has shown in sales, rejuvenated expansion, and widespread recognition of the accomplishment. Although the chain has not yet achieved the profits it reaped in 1985, sales and earnings increased steadily in the early 1990s to $3.61 billion and $64.7 million respectively for 1992. Despite a lingering recession, Wendy’s had outperformed the industry with 24 consecutive months of same-store sales gains. Plans for the future targeted international growth, where opportunities for expansion were infinitely better than those in the saturated American market. The company opened its 4,000th restaurant in 1992, and projected another 1,000 openings by mid-decade.

Near and Thomas have accumulated numerous awards in recognition of the dramatic turnaround at Wendy’s. In 1989, Near was given the title of chief executive officer at Wendy’s, and he was named chairman and CEO two years later. Near 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.”

Thomas’ national celebrity has given him an avenue for the promotion of his favorite cause, adoption. The circumstances of his youth inspired him to create the Dave Thomas Foundation for Adoption in 1992 and made him a natural spokesperson for President George Bush’s national initiative, “Adoption Works … For Everyone.” Thomas published his autobiography, Dave’s Way, in 1991, and pledged all proceeds from its sale to national adoption awareness programs.

As Wendy’s “ambassador,” Thomas spends most of his time traveling to book promotions, public appearances, and franchises. 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 goals for the future focus on maintaining the momentum the company has generated in the early 1990s with an emphasis on street-level operations, marketing, and efficient administration.