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What’s the Impact of Wendy’s Move towards Franchising?

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Franchising

In simple terms, “franchising” is when a business owner—franchisor—gives license to a third party—franchisee. The franchisor allows the franchisee to operate its own business under the franchisor’s brand name. The franchisor also provides the necessary business knowledge. In turn, franchisees are expected to pay a fee. They have to adhere to the policies and standards of performance agreed on with the franchisor.

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Franchised and owned restaurant mix

As of December 2014, Wendy’s (WEN) had 957 company-owned restaurants. Wendy’s has 6,515 restaurants.

The above chart was prepared according to the 2014 filings. You can see that Wendy’s franchised about 87% of its stores. Other companies in the industry franchised stores as well. McDonald’s (MCD) franchised about 82%. KFC (Kentucky Fried Chicken) comes under the umbrella of Yum! Brands (YUM). It franchised close to 91% of its stores. Panera Bread (PNRA) franchised close to 50% of its stores.

Companies in the fast food restaurant industry can be accessed through ETFs like the Consumer Discretionary Select Sector SPDR ETF (XLY). XLY holds 0.35% of Darden Restaurants’ (DRI) stock.

Impact on Wendy’s franchising

Overall, Wendy’s move towards franchising had a positive impact on the bottom line. This is partly due to the savings in operational and labor costs that have been transferred to the franchisees. Currently, 85% of Wendy’s stores are franchised. According to reports by Forbes, Wendy’s is planning to sell another 500 restaurants to franchisees by 2016.

In the next part of this series, we’ll analyze the components of franchising Wendy’s revenue.

To learn more about the restaurant industry in the US, read An in-depth overview of the US restaurant industry.

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