Wendy's Costing Methods

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UVA-C-2206

WENDY’S CHILI: A COSTING CONUNDRUM
What happens to a successful company when it loses its founder, senior chairman, advertising icon, and beloved leader? That was the question being asked about Wendy’s International, Inc., in January 2002 after Dave Thomas, 69, passed away from cancer. In the words of Jack Schuessler, the company’s chairman and CEO, “Dave was our patriarch. He was the heart and soul of our company.” Without him, the company would never be the same. However, Dave Thomas left behind a legacy about values, ethics, product quality, customer satisfaction, employee satisfaction, community service and shareholder value that provided a solid foundation on which to continue the success the company had experienced for more than thirty years. Still, the patriarch was gone, and the future was uncertain.

How It Began
Wendy’s International, Inc., was founded by R. David Thomas in Columbus, Ohio, in November 1969. Prior to that time, Thomas had purchased an unprofitable Kentucky Fried Chicken franchise in the Columbus area, turned it around, and subsequently sold it back to Kentucky Fried Chicken at a substantial profit. He then became a cofounder of Arthur Treacher’s Fish & Chips. So, at the time he founded Wendy’s, Thomas was no stranger to the quick-service restaurant industry. Although he had been involved with businesses specializing in chicken and fish, Thomas’s favorite food was hamburgers, and he frequently complained that there was no place in Columbus to get a really good hamburger without waiting thirty minutes or more. Someone finally suggested (whether in earnest or in jest was debatable) that he get into the hamburger business and do it his way. After thinking it over, that’s just what he did, and he named his new company after his eight-year-old daughter, Wendy. His goal was to provide consumers with bigger and better hamburgers that were cooked to order, served quickly, and reasonably priced. By offering what he believed was a different product, Wendy’s went after a different segment of the hamburger market— young adults and adults. In so doing, Thomas did not view his company as “just another hamburger chain.”

This case was prepared by E. Richard Brownlee, II, Professor of Business Administration. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright  2005 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to sales@dardenpublishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. ◊

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UVA-C-2206

Wendy’s International chose as its trademark what the company called the “old-fashioned” hamburger. This was a hamburger made from fresh beef that was cooked to order and served directly from the grill to the customer. So that customers could see what they were eating, “old-fashioned” hamburgers were square in shape so as to extend beyond the round buns on which they were served. The unique shape also differentiated a Wendy’s hamburger from those of other restaurants. Thomas felt that one way for Wendy’s to remain price competitive and still serve a better quality product was to limit the number of menu items. Thus, he decided on four main products: hamburgers, chili, french fries, and Wendy’s Frosty Dairy Dessert. The standard soft drinks and other beverages were also included.

Wendy’s old-fashioned hamburgers were pattied fresh daily from 100% pure domestic beef and served “hot ’n’ juicy” in accordance with individual customer orders. Customers could choose either a single (one l/4 lb. patty), a double (two l/4 lb. patties), or a triple (three l/4 lb. patties). With the many condiments available,...
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