SWOT Analysis of Wendy’s Restaurants
Wendy’s restaurant is owned by the Wendy’s company and owns 6537 restaurants as of January 1, 2017. Like Burger King, the brand relies heavily on franchise system. 330 of its total restaurants are owned by the company and the rest by the franchisees. It is the third largest QSR Company in the hamburger sandwich segment in the fast food industry. The primary business of Wendy’s is to operate, develop and franchise a system of distinctive QSR restaurants that serve high quality food. Quality and technology have become important focus areas for the fast food businesses. There are a total of 376 franchisees that operate 5,768 restaurants. The primary source of revenue for the brand are – the restaurants it owns and the revenue it earns from its franchisees including royalties rents etc.
The first restaurant by Wendy’s was opened in Ohio in 1969. In 2016, while it opened 13 new restaurants operated by the company, it also closed seven underperforming ones. Competition in the 21st century has kept rising in the fast food industry and Wendy’s is also feeling the pressure. The factors that differentiate the best brands in this era from the ordinary ones are quality, technology, marketing and customer relationships. This is a SWOT analysis that will discuss the strengths, weaknesses, opportunities and threats before the brand. In these four factors the first two are internal factors that exist within the organization and the last two are external factors. A SWOT analysis proves useful to understand a business’ position in the market against its competitors and the condition of its business as well as its business and opportunities.
- Heavy presence in US and Canada – A very large number of the restaurants owned by the company are in US and Canada. It has 5768 restaurants in the 50 states of US, district of Columbia and Canada. As of January 1, 2017, there were 6098 Wendy’s restaurants in operation in North America. Overall, most of the revenue for Wendy’s comes from North America.
- Focus on international expansion – Wendy’s is focusing in international expansion for more revenue and faster growth. Currently there are 439 of its restaurants operating outside North America. It is present in 30 countries. Wendy’s market is divided into seven important regions. These regions are Asia Pacific, Caribbean, Europe, Middle East, Africa, Latin America and North America.
- Focus on the use of technology for better consumer experience – In the restaurant industry, technology is playing a critical role in every aspect of business. Wendy’s has also focused on and invested in technology for a better overall consumer experience. The technologies used in the Wendy’s restaurants include mobile technology, mobile ordering, mobile payment and other self service technologies.
- High operating margins – While Wendy’s revenue has been falling for the last four years, its operating margins have kept rising steadily. Its operating margins have kept growing and grown to 25% from 6% in the last 4 years only. These things are a result of the cost cutting and optimization undertaken by the company during the last four years.
The following two figures show how Wendy’s revenue and net income have changed from 2012 to 2016.
Revenue in millions of Dollars (US)
Net Income in millions of Dollars (US)
- Overdependence on the western markets – A very large part of Wendy’s franchises close to 93% is in the Western markets. North America is the biggest source of revenue for the brand. In this way, the brand depends mainly on the North American markets for its revenue. Its over dependence is a weakness it can overcome through international expansion.
- Steady drop in revenues – The brand’s revenues over the last four years has kept dropping steadily. Since 2012 there has been a total 42% drop in the revenues. The good news is that despite this drop in revenue the brand’s operating margins have kept improving. The firm has undertaken a lot of optimization that was meant to reduce expenditure.
- Slow international expansion – The brand’s international expansion has remained relatively slow. There are very few restaurants of Wendy’s outside, North America and while China and India are lucrative markets, the brand has not been able t penetrate these markets deep. Except a thing presence in India, the brand has a small presence in some of the other Asian markets.
- Overdependence on franchisees – More than 90% of Wendy’s restaurant are operated by the franchisees. The number of restaurants owned and run by the company run by the brand itself is lower. It means the brand is dependent on its franchisees for a major part of its revenue.
- Growth in Asian markets – The brand has some excellent opportunities of growth in the Asian markets. India and China are both fast growing markets that offer excellent opportunities of growth. Wendy’s expansion into these areas can be highly profitable for the brand. Local partner ships in these countries will allow the brand to easily penetrate these markets and help it grow faster.
- Economic growth – Economic growth globally has brought excellent opportunities for the brand. The world is out of the recession and in most areas of the globe economic activity has risen. Growing economic activity has led to higher employment and job opportunities. This in turn led to faster growth of the middle class consumers whose income level rose. Due to it, people are spending more on food and this means a profitable opportunity for the restaurant brands.
- Menu innovation – Menu innovation will also bring excellent opportunities for the fast food brand. The taste of the millenials is much different from the other generations. They want high quality food at affordable prices. Moreover, the millenial consumers love variety in menu. So, investing in an innovative menu can be highly profitable for the fast food brands. Quality and variety in menu is among the most important factors to attract consumers. The higher the quality and variety in menu, the more loyal will the customers be and the higher will be a brand’s popularity.
- Use of AI and digital technology – It is not just about taste and prices but the brands have also to invest in technology for a better consumer experience. Customer experience in the 21st century matters more than everything. The higher the level of customer convenience, the higher a brand’s popularity. While Wendy’s is investing in technology, the level of competition is very high in the industry and therefore investing in AI and other innovative technologies can make a brand more competitive.
- Intense competition – The level of competition in the fast food industry is very intense. McDonalds and Burger King are the biggest brands in the industry that are creating intense competitive pressure on Wendy’s. This is the biggest threat for Wendy’s. Apart from these brands there is also an intense competitive threat from the other QSR brands. Both locally and internationally a large number of brands have risen which are adding to the competitive pressure on the fast food brands.
- Regulatory and legal pressures – The level of legal and regulatory pressure in the industry has risen. Apart from food quality and labor there are other laws too like those related t sustainability that are creating pressure and adding to the compliance costs for the brands.
- Geopolitical disruptions – Geopolitical events are also a threat for big businesses and fast food brands like Wendy’s. Terrorism is a major cause of business disruption in the Western nations. Apart from that Brexit has also given rise to uncertainty that is dangerous for the brands having a higher presence in the Western markets. Geopolitical events can make the situation difficult for any of the big brands. They affect both the political and economic scenario and can lead to losses for any brand.
- Economic fluctuations and rising costs of labor and raw material – The cost of labor and raw material has kept rising in the 21st century and this has led to a rise in operational costs for the big brands. Despite the economic recession having the fast, economic activity around the world in several nations has kept fluctuating. The increasing costs shrink profit margins and economic fluctuations lead to revenue losses.
Wendy’s has an extensive presence in North America which is the biggest source of revenue for the fast food brand. The brand has focused on food quality and variety in menu. The brand is trying to expand internationally. However, it has very thin presence outside North America right now. While its revenues have dropped year by year during the last four years, the brand’s operating margins are very high. Now, the brand’s opportunities lie in the Asian markets and in technology. Competition has grown intense in the 21st century and by investing in technology and innovating the menu, the brand can remain innovative.