Wendy’s hungry for growth

But how well can a fast-food company run other concepts? Mr. Schuessler says the plan isn’t to take over the concepts but rather lend Wendy’s expertise, such as franchising or showing a small company how to grow big. “We’re not as good at incubating new companies,” says Mr. Schuessler, a 27-year Wendy’s veteran who worked his way up from store manager.

The Globe and Mail
February 11, 2002

Wendy’s hungry for growth
Shirley Leung

When Wendy’s International Inc. executives peer 10 years into the future, they see no room in North America for new units of their hamburger chain.

“What is going to be our growth driver?” asked chief executive officer and chairman Jack Schuessler in a recent interview. The future, he says, lies in acquisitions of other concepts and joint ventures.

Mr. Schuessler says the company could make one large acquisition of $250-million to $300-million (U.S.), perhaps even more expensive than that.

Wendy’s could then still make several smaller purchases. Last September, the company hired a mergers-and-acquisitions specialist and has available $200-million to $400-million in cash to help pay for deals. The company’s strong balance sheet would make financing easily available.

Mr. Schuessler won’t identify of any company Wendy’s is holding talks with, but says any new concepts won’t compete with Wendy’s Old Fashioned Hamburgers franchisees. That means it’s unlikely a target would be a fast-food chain, offering hamburgers, chicken, tacos or pizza.

Wendy’s market research is providing some guidelines, steering the company to look at restaurants that offer convenience and value but also bold and ethnic foods. The company is looking at different formats from fast-food to casual dining to “fast-casual,” an emerging segment within the restaurant industry that offers higher quality food without the table service. Wall Street analysts are hoping that Wendy’s will buy restaurants in this new category instead of building more fast-food brands.

But how well can a fast-food company run other concepts? Mr. Schuessler says the plan isn’t to take over the concepts but rather lend Wendy’s expertise, such as franchising or showing a small company how to grow big. “We’re not as good at incubating new companies,” says Mr. Schuessler, a 27-year Wendy’s veteran who worked his way up from store manager.

Perhaps it is the success of Wendy’s first acquisition, the Tim Hortons coffee and doughnut chain in 1995, that has made the company confident about staking part of its future in acquisitions. Wendy’s founder Dave Thomas, who died last month, orchestrated the deal with Tim Hortons in a stock transaction valued at about $400-million.

Hortons brought breakfast to Wendy’s, which it doesn’t serve. The coffee chain has boosted Wendy’s bottom line and is growing faster than Wendy’s, the No. 3 hamburger chain behind McDonald’s Corp. and Burger King. In 2001, systemwide sales for 2,163-unit Hortons grew 15.4 per cent to $1.5-billion from $1.3-billion, while 6,043-unit Wendy’s grew 6.25 per cent to $6.8-billion from $6.4-billion.

Wendy’s executives say it’s a good time to hunt because the recession means better deals and lower prices on real estate. It also comes at a time when Wendy’s core business is still growing and posting healthier profits and sales gains than its two larger competitors. While McDonald’s and Burger King have struggled with menu changes and discount pricing, Wendy’s has stuck with a core menu featuring its hallmark square-shaped burgers and an everyday value pricing strategy.

“We believe our core business can generate 12 per cent to 15 per cent long-term growth,” says chief financial officer Kerrii Anderson. Referring to the need for mergers and acquisitions, Ms. Anderson adds, “we don’t feel under pressure.”


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