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Brand Transformation: Wendy’s System Optimization Initiative

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Wendy’s System Optimization Initiative

In 2013, Wendy’s (WEN) announced a System Optimization Initiative program as part of its brand transformation strategy. It planned to sell close to 425 of its company-owned restaurants to franchisees. It also plans to remodel restaurants under the Image Activation program. We’ll discuss the Image Activation program in the next part of this series.

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System optimization through franchising

The above chart shows that Wendy’s sold 203 restaurants in 2014 and 244 restaurants in 2013. This resulted in net gains of $69.6 million and $46.7 million, respectively. Under this program, Wendy’s plans to sell 500 more restaurants to franchisees by 2016.

Net impact of system optimization

Above chart shows that along with the purchase and disposal of restaurants, the System Optimization Initiative program also involved:

  • System optimization re-measurement – physical assets being restated in the books at the estimated fair value
  • Accelerated amortization – writing off any franchisee rights that extinguish due to this initiative
  • Share based compensation – cost on modification of stock options plan in connection with the termination of employees under this initiative

To date, Wendy’s saw a net gain of around $37 million from this initiative.

Rebranding initiatives from peers

McDonald’s (MCD), in its national brand campaign, reimaged over 930 of its existing locations in 2014. According to its CEO, Cheryl Bachelder, Popeyes (PLKI) rebranded itself by remodeling its restaurants. The restaurants are designed according to New Orleans heritage architecture. This gives the restaurants an authentic look. According to analysts, Domino’s (DPZ) successfully launched its “Pizza Theater” program to reimage its stores last year.

Companies in the fast food restaurant industry can be accessed through ETFs like the Consumer Discretionary Select Sector SPDR ETF (XLY). XLY holds about 0.91% of Chipotle’s (CMG) stocks.

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