Wendy's Will Sell Another 500 Stores To Franchisees
Written by Ken Gaebler
By transferring ownership of hundreds of franchise locations, the burger chain plans to reduce capital expenditures and ultimately limit store ownership to five percent.
Wendy's, the nation's third largest fast food burger chain, recently announced it will sell another 500 store locations to franchisees as the company continues its efforts to dramatically reduce its store ownership holdings.
But what does that mean for the Wendy's franchise? And more importantly, what does it mean for existing and prospective Wendy's franchisees?
Wendy's Store Sell-Off
Wendy's decision to transfer 500 additional stores to franchisee ownership wasn't a surprise to investors or analysts. Over the past several years, the chain has been unloading ownership of locations as part of a long-term financial strategy to own and operate just 5 percent of its locations by mid-2016.
The push to dramatically reduce store ownership has been well-received by investors because it is intended to lower the organization's costs and shift most of the company's revenue to royalties and rents--which are more predicable sources of income.
In fact, Wendy's anticipates that as it approaches its goal of 5 percent store ownership, the company will earn $400-$475 million in annual revenues and substantially reduce future capital spending. News of the proposed sale of locations pushed the company's stock to a daily high of $11.50, the highest share price Wendy's has seen since 2007.
What It Means for Franchisees
Wendy's and other well-known burger chains (e.g., McDonald's) have increasingly lost market share to Chipotle, Panera and casual dining restaurants that offer more diverse menus with healthier food options.
The company has said that it will use the proceeds from the sale of restaurants to shore up its finances and deliver cash to shareholders. However, by minimizing store ownership, Wendy's has the opportunity to refocus on adapting and evolving the brand to the needs of today's fast food marketplace.
For entrepreneurs interested in buying an existing franchise, the sale of additional Wendy's store locations is obviously good news. But it may also benefit existing Wendy's franchisees, equipping them with the support of a franchisor that is solely committed to improvements designed to benefit franchisees--rather than trying to operate store locations itself.
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