With over 7,000 restaurants in the US alone, no wonder Wendy’s is one of the most popular fast food franchise. But are the profits worth the costs?
We found out that the average investment was $1,374,833 and that the average store earned sales of $1,791,231 per year. With an investment to sales ratio of 1.3x, does it mean that Wendy’s is a good investment? What about the investment payback?
In this article we’ll look at Wendy’s Franchise Disclosure Document to find out whether you should invest in this franchise opportunity. Let’s find out!
Wendy’s franchise: key figures
|Average annual sales||$1,791,231|
|Investment to sales ratio||1.3x|
|Investment payback*||5.1 years (good)|
|Minimum net worth||$1,000,000|
|Minimum liquid capital||$500,000|
Wendy’s: a brief introduction
It serves chicken sandwiches, French fries, salads, and desserts like the ice cream-based Frosty in addition to its famous old-fashioned hamburgers, which are square and made of fresh ground beef patties served on circular buns.
Headquartered in Columbus, Ohio, the food chain was founded by Thomas Dave in 1969.
Wendy’s franchising journey began in 1972 when LS Hartzog became the company’s first franchisee. Today, the chain store is the third-largest hamburger fast-food restaurant in the world after Burger King and MacDonald’s.
Wendy’s franchise: pros and cons
There are several advantages and disadvantages associated with Wendy’s franchise.
- Superior Brand Popularity: The Wendy’s brand is a phenomenon among fast food enthusiasts. It is recognized by almost every household in the United States. Operating a Wendy’s franchise will kick-start your business since you are reaching an already-informed customer base.
- Extensive training and support: Wendy’s franchise training program is very comprehensive. Wendy’s trains new franchisees on how to manage franchise operations and implement the chain’s production model. Franchisees also get plenty of support and consultation with high-level managers on operational practices. It is favorable even to those who don’t have prior multi-unit franchise management experience.
- Proven business model: Wendy’s fast food tradition has been in place for many decades. Best known for its square hamburger patties served on circular buns, Wendy’s has mastered the art of making tasty, fresh hamburgers, which differentiates them from the competition. As a new franchisee, you can implement Wendy’s business model, which has been tested and proven for a long time.
- Support for minority groups: An outstanding feature of Wendy’s is its support for franchise ownership among women and people of color. This is a significant selling point for Wendy’s franchise and creates investment opportunities for anyone interested in growing with the Wendy’s Own Your Opportunity initiative.
- Quality food: Wendy’s franchise is known for promoting the quality of its food. Wendy’s does everything possible to live up to its all-time philosophy, “Quality is our recipe,” and to offer customers made-to-order great-tasting food. They make sure they serve fresh and quality foods that keep attracting more customers.
- Passive investment opportunity: For those looking for a passive investment, a Wendy’s franchise can be a great option. Although Wendy’s requires the franchisee to be fully committed to the operations of the restaurant, you can appoint an individual operator to supervise the restaurant operations on your behalf.
- Global presence: With over 7,000 stores globally, the chain store boasts a big global presence. This offers new franchisees a large customer pool and great growth potential.
- Lengthy training process: If you’re looking for a franchise where you can start operations immediately, a Wendy’s franchise may not be for you. They have an extensive and lengthy training process of up to six months. New franchisees also undertake on-the-job training after starting operations. This results in a lot of involvement and is time-consuming.
- Competition: Wendy’s franchise faces a lot of competition from fast food chains like McDonald’s and Burger King. This has led to fewer sales and lower profitability.
- High cost of investment: It is not cheap to become a Wendy’s franchisee. You need a franchise fee of $40,000 and a liquid capital of $500,000. This is quite high compared to its competitors.
- No territory protection: Wendy’s franchise agreement does not offer exclusive territory protection. This may work against new franchisees as they find themselves competing with other franchises granted by the same franchisor.
How much does it cost to open a Wendy’s franchise?
To open a Wendy’s restaurant, you would need to invest $1,374,833 on average, including the initial franchise fee of $55,000. This initial franchise fee includes an application fee of $5,000 and an initial technical assistance fee of $50,000.
The investment amount mentioned above is an estimated average that depends on various factors. For instance, the investment cost varies depending on how you finance the acquisition of the property.
|If you pay cash||$1,887,500||$3,693,000||$2,790,250|
|If you finance (debt or equity)||$556,500||$1,135,000||$845,750|
|If you lease||$329,500||$647,500||$488,500|
The initial investment covers all types of expenses that can be incurred when opening a fast food restaurant.
It includes, among others: training expenses, real estate, permits, construction and site improvements, equipment, signage, opening inventory and supplies, grand opening advertising, etc.
|Construction, permits||$1,147,000 – $2,515,000||$271,000 – $551,000*||$24,000 – $63,500*|
|Equipment||$331,000 – $420,000||$11,000 – $18,000*||–|
|Additional funds**||$150,000 – $192,000||$150,000 – $192,000||$150,000 – $192,000|
|Other||$259,000 – $566,000||$124,500 – $374,000||$155,500 – $392,000|
|$556,500 – $1,135,000||$329,500 – $647,500|
How much can you earn with a Wendy’s franchise?
A Wendy’s franchise makes $1,892,827 in sales per year on average (median $1,791,231). This number is the average sales of 5,190 restaurants operating in the year 2021.
How profitable is a Wendy’s franchise?
As per its latest Franchise Disclosure Document, Wendy’s franchise stores spend on average 32.1% of their sales in COGS. Unfortunately, that’s about it for disclosure: Wendy’s doesn’t disclose anything when it comes to labor costs nor rent.
As per our estimates, Wendy’s stores have an adjusted EBITDA margin of 24% of sales. This means that the average Wendy’s restaurant makes $428,104 in profits per year.
Note that this adjusted EBITDA doesn’t include any other costs not listed below. For example, non-operating costs like taxes and debt interest aren’t included. For that we have to estimate net profit instead (more on that below).
Here’s our calculation:
|Profit-and-loss||Amount ($)||As % of sales|
|COGS||$(574,985)||32.1% as per FDD|
|Royalty + marketing fees||$(143,298)||8% as per FDD|
Is a Wendy’s franchise a good investment?
You may be wondering: are the profits worth the (hefty) investment cost of $1,374,833.
In order to assess whether you should invest in a Wendy’s, there are number of factors to take into account. One of them is the payback period: the time it takes for you to recoup your original investment.
As per our analysis, it takes 5.1 years for a franchisee to reimburse the original investment of $1.3 million, which is good even though not excellent.
Indeed, as rule of thumb, anything below 3 years is excellent, anything 5 to 6 years is good / average). From that perspective, Wendy’s is a good franchise investment.
Again, this is based on average financial performance numbers for the 7,000 stores Wendy’s has in the US. So your franchise may very well be different. As such, your restaurant may have a better (or worse) investment payback.
To find out yours, download our business plan and customize it with your assumptions. We’ve included all you need from breakeven point, ROI, payback, your financial statements, and more.
Download the Wendy’s business plan and get your franchise funded
Including a 5-year financial plan built with the latest Franchise Disclosure Document numbers