How Do They Make Money?

Wendy's business model is... (wait can you guess it?)... to sell fast food.

But! As is normally the case when studying businesses, the devil is in the details... but so is salvation.

Let's get into the gory details.

Wendy's 2024 Annual Report

The first line of their annual report..

Breaking down their restaurants:

5,933 in the US
- 381 operated by the Company
- 5,552 ran by franchisees. Wildly, there are only 207 franchisees.
1,307 stores in 31 foreign countries
- 1,294 operated by 107 franchisees
- 13 operated by the company

Wendy's also owns Arby's, which I didn't know until I started researching them.

They call out their business strategy as:

Driving same-restaurant sales and share growth (kinda failed at this recently lol)
Accelerating digital growth (up 40% from the CEOs letter in 2024)
Improving restaurant profitability
Driving global unit growth (boring.. but I want to see how they are favored internationally... will cover in the growth section)

They divided the business into 3 segments.

Wendy's US
Wendy's International
Global Real Estate & Development

The first two are pretty obvious. They make money from revenues from sales at stores, royalties, and franchise fees and national advertising fund collections from franchised restaurants.

"Global Real Estate & Development includes real estate activity for owned sites and sites leased from third parties, which are leased and/or subleased to franchisees, and also includes our share of the income of our Canadian restaurant real estate joint venture (“TimWen”). In addition, Global Real Estate & Development earns fees from facilitating franchisee-to-franchisee restaurant transfers (“Franchise Flips”) and providing other development-related services to franchisees."

That's really good to see! They are forming into a similar business model to McDonalds (real estate company that sells hamburgers). I'll need to break this down in later research though, because they also brag about being an "asset light franchisor".

Company operated restaurants comprise ~5% of their total revenues.

Interestingly, Wendy’s does not sell food or restaurant supplies to its franchisees.

## Franchise Agreement

Agreement provides franchisee the right to construct, own, and operate a Wendy's restaurant upon a site accepted by wendy's and to use the Wendy's system
20 year term, 10-year renewal subject to certain conditions.
Current agreement required franchisee's pay 4% monthly royalty of sales AND required a $50,000 initial technical assistance fee.

These are the key business measures they track:

Same-Restaurant Sales
Company-Operated Restaurant Margin
Systemwide Sales
Average Unit Volumes