uploads///Advertising as a Percentage of Sales

Wendy’s Advertising: Has It Been Effective?

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Apr. 3 2015, Updated 4:06 p.m. ET

Wendy’s advertising

Wendy’s (WEN) company-owned and franchised restaurants contribute towards its advertising. Restaurants’ contributions towards advertising are a percentage of net sales.

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Advertising costs as a percentage of sales

The above graph compares the advertising costs, as a percentage of sales, for Wendy’s and its peers in 2014. The graph shows that Wendy’s advertising cost percentage to sales is less than 1%. McDonald’s (MCD) advertising costs, as a percentage of sales, is 3%. Yum! Brands (YUM) is around 4.5%.

Wendy’s lower advertising costs could be due to the capital expenditure that it spent on its Image Activation program. It remodeled its restaurants. Remodeling is effective advertisement.

Same-store sales growth comparison

Same-store sales growth is a measure that expresses the percentage change in revenue generated by existing restaurant locations compared to the similar period last year. Wendy’s overall same-store sales growth is around 1.9%. McDonald’s is at -1%. Yum! Brands is at 3%. Chipotle (CMG) is at 16.8%.

Advertising impacts sales growth

Comparing the advertising cost as a percentage of sales with the same-store sales growth, advertising may have a limited impact on sales. Apart from advertising, there are other aspects that may influence sales—for example, reimaging, innovative menu, locations, and social media publicity. We’ll discuss same-store sales growth in the next part of this series.

Companies in the fast food restaurant industry can be accessed through ETFs like the Consumer Discretionary Select Sector SPDR ETF (XLY). XLY holds about 4.1% of McDonald’s.

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