Wendy's Chili Revisited

Topics: Costs, Fast food, Cost accounting Pages: 12 (4166 words) Published: February 1, 2008
CONTENTS Heading Page Executive Summary 3 Introduction 5 The Wendy?s Edge 5 Menu Unlimited? 6 Driving Ahead 7 Dollars and Sense ? The Cost of Chili 8 (i) Out of Pocket Basis 8 (ii) Full Cost Basis 10 (iii) The Real Cost 11 The Case For Chili 12 What Could Have Been 13 Looking Ahead 14 Conclusion 16 Appendix A 17 Appendix B 19 Appendix C 21 Executive Summary David Thomas founded Wendy?s in 1969 as a fast-food outlet providing quality food and quick service at reasonable prices. Since then Wendy?s has grown rapidly. The issue of dropping chili, one of the four items from the original menu, arose in 1994 when management began to examine cost and profitability issues more closely. Our analysis reveals that chili should continue to be served, as it enjoys a healthy profit margin of $0.278 per bowl served on a sales price of $0.99. Although management has successfully streamlined operations to this point, the company faces a whole new set of challenges in the future ? primarily a market characterized by fierce competition. Wendy?s will need to break from the traditional mould by providing innovative menu offerings and locating in high human traffic areas to compete effectively in the new millennium.

Introduction The main objective of this report is to determine the viability of retaining chili as an item on Wendy?s menu in terms of its costing and profitability. Our detailed analysis and discussion are found under the headings, ?Dollars and Sense? (page 8 ) and ?The Case for Chili? (page 12 ). We have also included discussions on Wendy?s attributes, ?The Wendy?s Edge?( page 4), why Wendy?s had to broaden its menu ?Menu Unlimited?, (page 6 ), the unique success of Wendy?s drive thru, ?Driving Ahead?, (page 7), a look at how Wendy?s could have better managed the difficult 80s, ?What Could Have Been??,(page 13) and a glimpse into the future of Wendy?s, ?Looking Ahead?,( page 14).

The Wendy?s Edge ?Great chefs are not made ? they are born.? David Thomas, the founder of Wendy?s International Inc., is a living example. Wendy?s was born out of his quest for the perfect hamburger. Despite fierce competition and a market rapidly approaching saturation, Wendy?s not only managed to stay abreast but also thrived. Instrumental to their success was the implementation of the philosophy which Dave Thomas liked to refer to as the ?Wendy?s Way?. This was founded on the belief that the combination of product differentiation, market segmentation, quality food, quick service and reasonable prices would produce a successful company.

Wendy?s began with four core offerings - hamburgers, chili, french fries and Wendy?s Frosty Dairy Dessert. This limited menu enabled Wendy?s to concentrate their efforts on providing superior quality food items at competitive prices. Unlike their competitors who churned out assembly line hamburgers, Wendy?s was able to offer hamburgers customized to suit individual consumers tastes. Servicing orders to suit customer preferences can be a time consuming process but Wendy?s was able to anticipate demand and have a sufficient supply of hamburgers already cooking when the customer arrived at the restaurant and hence was able to deliver ?hot ?n juicy? old-fashioned hamburgers in ?fast-food? time. The tasty old-fashioned hamburger customized to individual preferences struck a chord with the consumer and enabled them to target adults and young adults with a higher disposable income as opposed to other fast-food chains that traditionally focused on a younger clientele.

Another distinguishing feature of Wendy?s approach was to locate outlets in high traffic urban and suburban areas. These superior locations heightened visibility and ensured a steady flow of customers to the outlets. The restaurants themselves were built on large plots of land with ample parking space to facilitate customer accessibility. Common interiors and exteriors across all the restaurants ensured a degree of standardization, a feature that led to...
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