Must-know: Why Wendy’s is selling its company-owned restaurants

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Wendy’s is selling its company-owned restaurants

Wendy’s (WEN) announced its “system optimization initiative” in July, 2013. This initiative was intended to transform Wendy’s brand by selling company-operated restaurants to franchisees and consolidating regional and divisional territories.

On track to meet goals

The company announced that it intended to sell 425 company-owned restaurants by the first quarter of 2014. Since 2013, the company has sold 418 restaurants in the U.S. market. Wendy’s is on track to almost achieving the set goal. In the earnings call, Wendy’s management iterated that selling its company-operated restaurants would help the company focus more on its franchise development activities.

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Along with the above, Wendy’s cost control measures has helped improve its company-operated margins by 3.7% over the past two years. Wendy’s peers, McDonald’s (MCD) and Yum! Brands (YUM), have also used both models to grow top line. An investor can get exposure to the restaurant industry through ETFs such as the Consumer Discretionary Select Sector SPDR Fund (XLY) and the PowerShares Dynamic Food and Beverage ETF (PBJ).

Continue reading this series to find out how Wendy’s earnings have changed by implementing this system optimization initiative.

How does the shift in models impact revenues?

By shifting from a company-operated model to a franchise model, the company ceases its share of entire revenues earned from a restaurant. Instead, it receives earnings from royalties, fees, and rent from the franchises’ leased properties. To know more about the pros and cons of the franchise model and the company-operated model, click on the respective links.

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