Case Study: Wendy’s Chili: A costing Conundrum
Dave Thomas was a man with a vision. He began his career in Columbus, Ohio in 1969 when he purchased a Kentucky Fried Chicken (KFC) franchise that was unprofitable. Dave turned that franchise into a profitable business and sold it back to KFC at a substantial profit. Dave had also co-founded Arthur Treacher’s Fish & Chips and was very familiar with the quick-service industry. However, hamburgers were Dave’s favorite food and he could not get a decent hamburger in town without waiting 30 minutes and so the idea of Wendy’s became a reality.
Dave had a vision for Wendy’s; to provide consumers with bigger and better hamburgers that were cooked to order, served quickly, and reasonably priced. The trademark for Wendy’s is “old-fashioned” hamburger which is what Dave wanted to provide to his customers.
Dave chose to limit the number of items on his menu which allowed him to be price competitive and still serve better-quality products. His core items were hamburgers, chili, french fries, and Wendy’s Frosty Dairy Dessert. With the condiments available Wendy’s was able to offer 256 possible hamburger combinations along with soda and other drinks.
Hamburger patties were made daily with 100% pure fresh beef and chili was made daily using a secret recipe and from mostly overcooked patties from the day before. Overcooked patties were the result of anticipating high demand for hamburgers, thus cooking for high demand, and actually having a lower demand. Throwing away the overcooked patties would be very costly but by finding a unique product to reuse the patties Wendy’s was able to recover part of the loss. Thus, Wendy’s “rich and meaty” chili became one of the four core menu items.
Wendy’s grew very rapidly and by the end of 1978 had a total of 288 company restaurants and 1119 franchised restaurants. By 1985 revenues had exceeded $1 billion and in 1986 reported a loss of $5...