One of the most recognizable franchises in America is Wendy’s. Many know the Wendy’s brand starting from their childhood, having had a burger, chicken tenders, or a frosty at one of their locations. Indeed, the Wendy’s franchise is one of the country’s most popular fast food franchises. The growth of this brand is astounding, and it is one of the key reasons it attracts prospective franchisees to franchise.
You might be an entrepreneur, saving up to start your first big business. You might also have accumulated a lot of savings and are researching where to deploy your money. For many, especially if this is their first business or first big venture, having a safe investment or business is most important. Starting a franchise can be appealing to lower the risk of failure. After all, if so many franchises have been successful, you might be able to easily replicate this success.
One of the most iconic franchise opportunities available is to start a fast food restaurant and lead it to success. When thinking of potential fast food chains to franchise with, you might consider Wendy’s. As part of your initial information gathering, however, you might be interested in the cost to buy a Wendy’s. Rightly, your logic makes sense in trying to evaluate the costs and benefits of a potential franchise like Wendy’s. In this post, you will find all the information you are looking for concerning the advantages and disadvantages of Wendy’s, the requirements of owning a Wendy’s location, the cost of a franchise, the profitability of one, the training, terms of the agreement, and application process involved. We will cover the following topics in-depth in this article:
Cost of Starting a Wendy’s
Wendy’s has high financial requirements which likely indicate a higher cost to start a Wendy’s. While this might be true for the total investment made to start the business, some costs go directly to corporate and are involved in the franchising process. Understanding these costs is a good idea before moving forward on a franchise deal. It is also key to evaluating the worthiness of a given investment.
Starting with the costs paid to corporate, the first cost is a background check they will run on you. This costs $500, which is a somewhat expensive expense for a background check. This clears you and helps you continue down the application process.
The next cost is only if your application is successful. If your franchise application is successful, Wendy’s will charge you a $5,000 fee. This fee is quite large and can be an uncomfortable expense. Not every franchise will charge a fee like this. The size of this fee is abnormal. If paying this application fee is an important expense to you, you should consider this before continuing with your Wendy’s application.
The next fee is the initial franchise fee. Wendy’s calls this the technical assistance fee. The initial franchise fee is an upfront lump sum payment made to corporate upon signing the franchise agreement. The size of the fee is $50,000 and it is good for a period of twenty years. The size of this sum is quite large. In comparing the franchise fee, it is high when compared to franchises like Subway, Jersey Mike’s, cafes, and other restaurant chains. However, for franchises in Wendy’s space, such as McDonald’s or Burger King, the franchise fee is pretty comparable.
These include the costs paid to corporate at the start of a Wendy’s franchise, but there are still costs related to the early months of operation of a Wendy’s and you continuing to operate the business. These include two percentage-based charges monthly.
The first is a royalty fee. A royalty fee is a fee paid to Wendy’s based on gross sales which support corporate and the continuation of the franchise relationship. The royalty fee for Wendy’s depends on the location, but it ranges from 4% to 6%. This range is fairly normal for franchises.
The other type of ongoing fee that Wendy’s charges is an advertising fee. The advertising fee is used to help support marketing efforts on the national scale as well as the local level. So, you theoretically receive some of this advertising fee back in the form of advertising conducted on behalf of your franchise. The advertising fee for Wendy’s is 4% of gross sales. This is also pretty standard, if not on the lower side. This makes the ongoing corporate fees paid by a franchisee somewhat affordable.
Aside from the costs paid to corporate, there are also costs going into the total investment of constructing the business and outfitting it with enough equipment and inventory to open. This total initial investment is estimated to range between $2 million and $3.5 million. These expenses are quite large even though they are in line with what one would be expecting to spend to open up a Wendy’s franchise.
Except for the background check fee and the application fee, most of the costs of opening a Wendy’s franchise appear to be pretty standard. You should concentrate more on the expected returns of your situation and the overall advantages and disadvantages when determining whether a Wendy’s is right for you.
To start, Wendy’s is an iconic American fast food chain, serving a wide variety of classic fast food dishes. These include hamburgers, fries, chicken sandwiches, chicken tenders, ice cream, wraps, and more. Generally, Wendy’s has expanded to include healthier menu options as well as their classic less-healthy American fast food items.
Wendy’s was founded in 1969 in Columbus, Ohio. Its headquarters have since moved to be located in Dublin, Ohio. The restaurant franchise has since grown to become the third-largest burger chain in the world, reaching over 6,700 locations. Its success has only been eclipsed by McDonald’s and Burger King. In any case, the sheer growth of the Wendy’s brand is impressive. It may be indicative that the franchise model is working well and that you might be interested in taking one of your own Wendy’s franchise business opportunities.
Being a Wendy’s franchisee means being ready to compete in the quick-service restaurant chain space. Starting a Wendy’s can cost a bit of capital, but the returns might be justified. Indeed, it is worth exploring the advantages of a Wendy’s restaurant to see if this franchise is right for you.
Advantages of Owning a Wendy’s
One of the first advantages to owning a Wendy’s franchise is the sheer name recognition of Wendy’s. Becoming a Wendy’s franchise owner means owning a business with an existing customer base who will seek out your business to eat at. Many already know your menu and the food you will serve, so not a lot of personal advertising work is needed.
Another advantage of owning a Wendy’s is that purchasing a franchise would seem to carry a low risk of failure. With over 6,700 locations, Wendy’s has a proven business model. It seems that the Wendy’s franchise cost is trumped by the success of the brand. Its position as the world’s third-largest burger chain demonstrates consumers’ love for Wendy’s.
Wendy’s is also well known for their support of franchisees. They have a mechanism inside the corporate Wendy’s structure known as the franchise advisory council. This council helps to provide franchisees with the support they need in order to succeed. This includes council for real estate, advice for engineering, and overall help in the construction process when setting up your business.
One of the ways that Wendy’s is seeking to surpass its competition is through the utilization of online software and ordering services for food. By using apps like DoorDash, Wendy’s intends to increase the sales they have well into the future. By staying on top of technological trends, Wendy’s hope to gain an advantage over its competition.
Disadvantages of Owning a Wendy’s
While considering the advantages of owning a Wendy’s is important, knowing the downsides is likewise smart when going to make your decision on purchasing your franchise and building your Wendy’s location.
One of the disadvantages of owning a Wendy’s is the competition. Many competitors, like the giants of McDonald’s and Burger King, already operate in the hamburger fast food space. It is not super clear what the distinguishing factors are that place Wendy’s food above that of McDonald’s, Burger King, or other brands.
Moreover, those challenges with competition carry over with other brands and styles of cuisine in the fast food space. This includes competing against chains like Taco Bell, Subway, and more. Truly, the options for people eating at fast food restaurants are plentiful. Selecting a good location might uniquely help your Wendy’s to try to put some distance between your Wendy’s restaurant and competitors. Yet, in any case, you will still experience the competitive effects of customers choosing between your brand and others.
One of the other disadvantages of a Wendy’s franchise is the sheer cost to open a location. The costs are pretty high relative to other styles of franchises. Brands such as Subway or Jersey Mike’s will have lower costs. These brands also likely have less profit on average than a Wendy’s, but the startup cost is substantial.
This also increases the risk of deploying that much capital with Wendy’s if your location is not successful. In any case, the startup costs, initial investment, and risk are higher with a Wendy’s franchise than with other types of cuisines or restaurants. It should still be mentioned that Wendy’s startup cost in the hamburger fast food space is similar to McDonald’s, however. So, these costs may be industry-specific. Nonetheless, they are still separately high.
Requirements for Owning a Wendy’s
After weighing the advantages and disadvantages of owning a Wendy’s, and if you are considering moving forward in the decision process of buying a franchise.
Starting with the financial requirements for applying to own a Wendy’s location, there are two main figures to pay attention to. First, there is the net worth requirement. Wendy’s requires their franchisees to have a net worth of at least $1 million. This might sound like a high amount, but you might still meet this requirement.
To calculate your net worth, start by adding up the value of all of your assets. These are things like the value of your house, your car, your savings, your stock accounts, and any other things which could be sold for a value. Then, subtract your liabilities, such as any outstanding balances on loans or debt you owe. The number you arrive at is your net worth. If it is at least $1 million, you are still eligible to open a Wendy’s.
The second financial requirement for being a Wendy’s franchisee is having a minimum liquidity of $500,000. Minimum liquidity, or liquid assets, is the amount of money that you can access on short notice. This would include your savings, stocks that you can easily sell, and any other form of money that you can quickly draw on. If the total of these is at or more than $500,000, you are eligible to apply to Wendy’s.
While the financial requirements are high as compared to other franchise cuisines and styles, they are pretty average for the hamburger fast food space. These requirements are fairly similar to the requirements for opening up a McDonald’s franchise, for example.
There are also other guidelines Wendy’s suggests for their applications. While these may not be strict requirements, trying to adhere to them will improve the likelihood that your application for a Wendy’s location will be approved. Some of the preferred criteria are experience-based, so you may not be able to meet all of the criteria perfectly.
One of the things that Wendy’s looks for is a person with experience in restaurant management and leadership at the single-unit or multi-unit levels. They are also ideally interested in someone who has experience in the quick-service restaurant industry. This is because these experiences will help a potential franchisee easily transition into the role of being a franchise owner and operator. If you do not have these, do not worry, as getting these experiences on short notice may be too difficult.
The next preferred quality in the way of experience is the ability to demonstrate business and managerial acumen. For you, you might be able to leverage past work experiences or life experiences in conversations with corporate Wendy’s to demonstrate this. They want someone who is prepared to fill the role of an owner of a Wendy’s franchise. Thus, using any of your most relevant experiences to demonstrate that you are ready to run a franchise location is a great idea.
Going into conversations with Wendy’s, you should focus on acquiring some information about your local market and the Wendy’s brand and business model. Since Wendy’s has already had a lot of success, they are looking for people to franchise who they believe will be very successful. Part of this means demonstrating to corporate that you are aware of the business opportunity in the market in that you are seeking to purchase a franchise. This can show that you have put a lot of thought and effort into the business decision, which will be a positive reflection on you as a business leader.
By studying Wendy’s business model and being familiar with how the business runs and its history, you can show corporate that you are well-studied and excited about the opportunity to have your own Wendy’s franchise. This demonstration of being familiar with the business is a great thing to show in the application process.
The next recommendation for preferred candidates is to be passionate. While studying and doing your homework will show Wendy’s that you are a committed candidate, it is also important to communicate that enthusiasm through your application and conversations with corporate Wendy’s.
One of their next preferred criteria for candidates is ensuring that they have adequate access to capital to go through the franchising process and set up their restaurant. While they do offer explicit financial requirements, this part of their recommendations essentially communicates that if you cannot demonstrate you are ready to pay for this franchise in assets that you currently own, then you will have provable access to credit to help you facilitate setting up the franchise.
The final part of the criteria that Wendy’s wants in an owner of a franchise is especially relevant if the prospective franchisee is only franchising one location. Wendy’s wants to see that their franchisees are interested not just in one location, but in expanding to many locations in the future. They view the model that franchisees can run franchises efficiently and effectively once they have positive experience running one location.
This last aspect that they are looking for might be dually beneficial to you as a business owner. If this is your first store, and you end up being successful, you might want to open another store to replicate the success you have already had. In any case, you do not need to sign any sort of financial commitment to this in the future. However, it is important that you have the view of being interested in opening up future units.
How Profitable is a Wendy’s?
Considering the profitability of Wendy’s is an important prerequisite to investing in a Wendy’s franchise. Indeed, given the high costs, there should be high profitability to justify investing.
According to Wendy’s franchise disclosure document (FDD), the median Wendy’s makes just over $1,500,000 in sales. After sales, a Wendy’s has to pay costs of goods sold and operating expenses, taxes, and interest to finally get to a number which is known as net profit. The net profit of Wendy’s is approximately $66,000.
If you do the initial math on this figure, it is not looking good for Wendy’s. If you are expecting to invest $2 million to $3.5 million, then earning just $66,000 each year will take a long time to recuperate. In fact, at that rate, it might not be worth it. While the profitability of your Wendy’s location will depend on the revenue that you take in and the costs that you have, the available numbers suggest that it will be a difficult journey if you franchise with Wendy’s.
Training for Wendy’s
If you are interested in starting a Wendy’s, you might be wondering about the training they offer to prepare you and your future crew for the grand opening. Training is covered by the technical assistance fee, or franchise fee, and it provides the initial training for the Wendy’s location. Moreover, it helps to assist franchisees with learning about the operations of the business and the technology that they will use.
The initial training program that Wendy’s offers will help you and your fellow employees. The training will help prepare your new restaurant for the challenges it will face on the job. The training will allow all of your opening employees to become accustomed to what it will be like to work at a Wendy’s. While this program is available for new employees and the new franchisee, your future managers have to be sent at your expense for their travel.
Term of Agreement and Renewal for a Wendy’s
The next step in planning for the long-term ownership and operation of a Wendy’s is considering the term of agreement and renewal for your location. As mentioned previously, when paying the technical assistance fee, or initial franchise fee, of $50,000, your franchise will be licensed for a period of twenty years. At the end of the twenty years, your agreement will be up. If you want to continue your restaurant under the Wendy’s brand, you will then have to pay a renewal fee. That renewal fee will cover your business for a period of ten years.
In addition to paying the fee required for renewing your business, you will need to meet renewal requirements for your business. These will be outlined by Wendy’s for you to be sure that you and your business are operating according to company standards.
It is important that you factor in potential renewal costs down the road since they will place additional strain on your business in the future. You want your business to be able to operate without issues. You will need some of the capital in your business to be able to cover the large renewal charges in the future. So, it is best to plan for these future expenses. This is especially true if you are considering taking out a loan to help you in financing the process.
Process of Starting a Wendy’s
Theoretically, the last step of your decision-making process in starting a Wendy’s is to submit your application for the franchise. However, this process can be drawn out into several steps, as is usually the case with franchise applications. If you are interested in starting a Wendy’s franchise formally, you should follow these steps and make sure to perform well at each of them to increase the likelihood that your application is successful.
The first step in applying for a Wendy’s application is to complete the Wendy’s Prospective Franchising Questionnaire. This form can be found on the Wendy’s website. The form will contain questions about you, your intent to franchise, and more. Filling this out correctly is important. So too is communicating the efficacy of your experience, position, passion, and motivation to start a Wendy’s franchise. Once corporate Wendy’s reviews your questionnaire answers, they will determine if you move on to the next step.
The next step of the process is to receive a call from Wendy’s and discuss your application, from which you will then be sent an application to fill out. This application will initiate the rest of the process, including the many conversations you will have with corporate about the initiation of the agreement.
Then, you will move on to the next stage, which includes a conversation with corporate about the brand and a geographic discussion. This gives you, as a prospective franchisee, more information about whether this might be an attractive venture for you. The talk about geographic markets Wendy’s is looking at will also give you insight into the best locations you can choose to maximize your profit.
You will then have a discovery day for the franchise in an in-market visit. This allows you to see where your potential franchise would be located and continue your conversations with corporate.
Following that, you will then meet with Wendy’s to discuss your business plan for your franchise with Wendy’s corporate. This meeting will be the final step before the approval process.
If you do well throughout all of these steps, you will receive preliminary approval. This approval does not mean you are yet able to own or operate a Wendy’s, but it does initiate the process. Wendy’s will guide you through the rest from here.
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