Wendy's Sues Franchisees, Unveils Prototype
As the newly independent Wendy's prepares to report earnings Thursday for the first time since parting ways with Arby's Restaurant Group, the quick-service brand is finding itself locked in a legal wrangle with a group of its own franchisees.
The 5,877-unit Wendy's Co. has filed a lawsuit against franchisees who have yet to install specialized equipment required to prepare the brand's new Dave's Hot 'n Juicy cheeseburger.
Wendy's said Dave's Hot 'n Juicy — an upgrade of Wendy's existing line of burgers that feature larger patties, premium ingredients and a butter-toasted bun — is part of an overall menu innovation plan that the chain hopes will spur renewed growth in the United States. As part of the menu strategy, the chain also relaunched its French fries last year, switching to a skin-on variety sprinkled with sea salt.
In addition, the Dublin, Ohio-based chain is hoping that a new unit prototype will help to drive U.S. expansion.
Going for the 'Gold' in October
Dave's Hot 'n Juicy cheeseburger is the result of Project Gold Hamburger, which Wendy's began more than a year ago. But WendPartners Franchise Group, led by franchisees Lewis Topper and Jeffrey Coghlan and several of their affiliated companies, is balking at installing the equipment required to prepare the new product line, Wendy's said in a complaint it filed in the U.S. District Court for the Southern District of Ohio.
Coghlan, a Cortland, N.Y.-based franchisee of Wendy's restaurants in four states and a defendant in the suit, was not available for comment at press time.
Arguing that going to market with the new burgers missing from a sizeable chunk of its system would undermine the rollout, Wendy's is suing WendPartners for trademark infringement and breach of contract and seeking a declaratory judgment that would compel the franchisees to install the equipment.
Wendy's said in its complaint that Topper, Coghlan and their affiliated companies own or control 329 Wendy's units in 20 states. The company noted that Topper and his companies make up the largest franchisee in the Wendy's system, accounting for more than 5 percent of the 4,609 franchised locations in the United States.
Vertical contact toaster ovens would have to be in place at all Wendy's restaurants by Oct. 3, when the company plans to launch a multimillion-dollar advertising campaign for Dave's Hot 'n Juicy Cheeseburger, the company said in court filings.
Wendy's charged that the WendPartners franchisees willfully missed the early July deadline with "a clear intention to confuse, mislead, and deceive" customers, according to the court documents.
"The launch of the new Wendy's products is a very significant event for the Wendy's chain of restaurants ... and it is important that every restaurant in the system participates in the launch and offers the new products in accordance with Wendy's specifications," the company wrote in its filing.
"Uniformity throughout the Wendy's chain of restaurants ... must be maintained in order to develop and maintain high operating standards, to increase the demand for the service and products sold, and to protect Wendy's reputation and good will in its trademark and system."
In the complaint, Wendy's said it has "incurred considerable time and expense developing the new Wendy's products," including tests in five test markets: Virginia Beach, Va.; Providence, R.I.; Las Vegas; Austin, Texas; and Mobile, Ala.
Wendy's announced the implementation schedule for Project Gold Hamburger to all franchisees in late 2010 and won the plans' approval from the Wendy's National Advertising Program and the Franchise Advisory Council, according to court documents. The development schedule stated that all units would have to install vertical toasters and related equipment by one of two deadlines.
"As members of Wendy's largest franchise group, the refusal of the defendants to order and install the required equipment and corresponding inability to serve the new products causes Wendy's irreparable harm," the company wrote. "Furthermore, their refusal to launch the new products is causing, and will continue to cause, irreparable harm to Wendy's relationship with other franchisees who have complied with the Project Gold Hamburger requirements and who will now question why all franchisees have not been required to comply."
Wendy's spokesman Denny Lynch said "virtually all" of the chain's franchise locations and all company-owned units have complied with the Project Gold Hamburger requirements. The Oct. 3 launch date will go forward regardless of the status of Wendy's suit against WendPartners, Lynch said.
Building For the Future
Wendy's also will start rolling out a new store design as it looks to increase domestic growth over the next few years. The first two of four different prototype designs opened Tuesday in Columbus, Ohio.
Lynch said 10 total prototype units would be built in five cities this fall, although no schedule has been determined for new-unit growth with one of the four designs.
"We still have to get customer feedback and measure our results," Lynch said from the opening event for the newest restaurant in Columbus. "These restaurants are living laboratories, so there's no timetable that says when we'll open more."
"The core of it was the restaurant needed to do a great job of demonstrating that Wendy's does go above and beyond typical fast food to provide fresher food," said Tre Musco, chief creative officer and chief executive of San Francisco-based Tesser, the design firm that created the prototype. "They did a lot to bring the food more forward, so customers can see a more open kitchen than before and more fresh produce in coolers."
The specialty beverage program now is more prominent in guests' line of sight, Musco added, as is an oven and a reach-in baked-goods case. The order line is broken up more with digital menu boards hanging on one side of the restaurant where the queue forms and where cashiers take customers' money. Guests then move to the other side of the line where their food is delivered by separate kitchen staff.
The updated décor of the new prototypes was meant to reinforce the freshness of the food that's been Wendy's positioning for years, Musco said.
"A new look goes a long way to tell people there are fresh things happening with the food," he said. "A lot of times with contemporary design, we lose warmth and wholesomeness to get more modern looks. We had to find a balance with a modern look and Wendy's traditional values of wholesome quality. The idea of transparency — people make a direct translation between big open windows and having nothing to hide in the kitchen."
Wendy's also announced that it would move 50 positions back to its Dublin, Ohio, headquarters from the offices of Wendy's/Arby's Group in Atlanta. The company's building at 1 Dave Thomas Boulevard will get an $11 million renovation as part of the move. The Wendy's Co. received $8 million from the city of Dublin and $4 million from the state of Ohio in job creation incentives, according to reports in the Atlanta Journal-Constitution and the Columbus Dispatch.
The Wendy's Co. had been part of Atlanta-based Wendy's/Arby's Group until last month when it sold Arby's to private equity firm Roark Capital.
— Mark Brandau