Cooperation and Development
New restaurants: The company and its franchisees opened 213 new restaurants in fiscal 2006. It is fast expanding and attracting venturing into new markets. Demand to develop new regional customer base :- With growth in the fast food industry a parallel demand for the regional customer base has cropped up. People from different regions like fast foods which match their taste pallets. There is an opportunity to cultivate this demand and translate it into up selling of the company’s product.
Competition: The quick service restaurant segment of the foodservice industry is intensely competitive regarding price, service, location, personnel and type and quality of food. Other key competitive factors include the number and location of restaurants, quality and speed of service, attractiveness of facilities, effectiveness of advertising and marketing programs, and new product development. Some of the Company’s competitors have substantially larger marketing budgets, which may provide them with a competitive advantage.
In addition, the Company’s system competes for management and hourly employees, suitable real estate sites and qualified franchisees. If the Company is unable to maintain its competitive position, it could experience downward pressure on prices, lower demand for products, reduced margins, the inability to take advantage of new business opportunities and the loss of market share. For instance, McDonald’s and Burger King provide stiff competition for Wendy’s in the US. In the US alone, there were approximately 550,000 restaurants that generated about $350 billion in annual sales in 2005.
Competitors could encroach into Wendy’s market share and adversely affect its margins. Rising raw material prices: The company is facing pressures due to increase in raw material prices. Owing to various import restrictions and higher demand, prices of beef trimmings (hamburger meat) increased by 12% during 2006. Further, the prices are expected to remain high during 2006 as well. Beef is the major raw material for the company’s products. Further hike in beef prices can have a negative impact on company’s profitability.
Move towards health consciousness: Over the past few years there has been a newfound emphasis on healthier eating. With a change in lifestyle, people are becoming more aware of the negative effects of fast food. This has a direct effect on the sales of the fast food chains that are associated with unhealthy food. Consumers are showing increased preference for fatfree and healthy food products. Food items containing trans-fats are losing market share as they are linked to cardiovascular diseases. Growing health consciousness might slowdown the revenue growth of the company.
US economy Although the fast food industry is increasing in the US but according to the Organization for Economic Cooperation and Development (OECD), GDP growth in the US is expected to slowdown in 2007. The GDP growth of the US economy is forecast to slow down from an estimated 3. 6% in 2006 to 3. 1% in 2007. More importantly, the US has seen 17 successive interest rate hikes over the past few years leading to the current high of 5. 25%. A weak economic outlook for the US would reduce consumer spending and put pressure on the revenues of Wendy’s.
Competitors expansion to other regional markets:- By virtue of their strong financial profiles, the competitors have reached Southeast Asia and far east. This gives the company a lag in sales and growth to start with. Company’s position to the competition Wendy’s has clearly focused on the cost leadership strategy (Porter 1980) in early 1990s. The low cost leader in any market gains competitive advantage by gaining more from the volumes. A very clear example for that is the Wendy’s advertisement. There are no playgrounds.
There is adult fare at low prices. Wendy’s has successfully identified its market through market research and is successfully capitalizing on it. Once this was imitated by competitors Wendy’s has switched its focus to the differentiation strategy. While its competitors were fighting out each other over price Wendy’s positioned its product in the premium range and the advertisements focused on the desirability of its product. Besides the company has differentiated it selves from the competition on the following manner: