(1) Wendy’s was able to achieve its initial success and grow so rapidly at a time when the quick service hamburger business appeared to be saturated because Wendy’s chose a strategic plan of targeting a different segment of the hamburger market, young adults and adults. Dave Thomas’s idea of an “old fashioned” hamburger allowed Wendy’s to differentiate from the competitors. The hamburger itself is made from fresh beef that is cooked to order and served directly from the grill to the customer. It is done this way to allow the customer to see what they are ordering. Allowing customers the opportunity to see the cooking process gains a certain level of comfort between the customer and the restaurant. “Old fashioned” hamburgers are square in shape so as to extend beyond the round buns on which they are served. Just when the quick-service hamburger business appeared to be saturates, Wendy’s, with a unique target market, and a product that differentiated from that of competitors, was able to grow.
Wendy’s was founded on the belief that the combination of product differentiation, market segmentation, quality food, quick service, and reasonable prices would produce a successful company. (2) Dave Thomas had a brilliant idea that he wanted to limit the number of menu items to only four main products. This decision allowed Wendy’s to remain price competitive and still serve a better-quality product. The benefits that might have resulted from the “limited menu” concept are that the four main products would save time and money for the company. Establishing credibility is important, and by consistently producing great tasting products, Wendy’s was able to build a strong following of fast food eaters. By focusing on only a few main products, Wendy’s could make these products stand out compare to those of competitors. By maintaining a solid marketing strategy, the company was able to cast a large net and attract various customers. Although the Wendy’s menu might seem “limited”, with the proper product might and condiments, Wendy’s was able to offer their hamburger in 256 combinations. By only having four main products, Wendy’s was able to limit waste which allowed them to maintain considerably lower prices, maintaining a strong competitive advantage.
This “limited menu” concept also left Wendy’s vulnerable to competitors. Some of the disadvantages of the concept come at the product level standpoint. Wendy’s was only casting their net to a small market of people. This allowed competitors the chance to produce products not offered at Wendy’s and potentially steal future customers. Wendy’s did not offer a children’s menu, which allowed competitors such as McDonalds to steal possible customers. The concept was eventually discontinued due to the growing market. More fast food restaurants were opening up each day, and the pressure to keep up with the competition grew too difficult. In order to stay competitive, Wendy’s had been forced to detach from the “limited menu” and expand in order to meet changing customer demands. (3) Wendy’s drive-thru window was successful when other quick-service restaurant chains had been unsuccessful at implementing the same concept because Wendy’s was first amongst various fast food establishments. Wendy’s began using the drive-thru window in the 1970’s and first implemented the concept as a convenience to the customer. By allowing the customer to never leave their car, Wendy’s became more attractive to the person that was running short on time. The drive-thru window was another way Wendy’s differentiated from competitors. When other fast-food restaurants tried implementing the same concept, they were unsuccessful due to the lack of excitement. Wendy’s created an initial level of excitement that competitors were unable to match. Being known as an originator creates a strong bond between customers. (4) See attached computations
(5) The out-of-pocket cost determines the true profitability of the chili. (See attached computations). I performed two scenarios for the out-of-pocket cost. The first scenario is the standard 90% of the time where no extra meat needs to be cooked for the chili, and the second scenario is a hypothetical 10% of the time meat needs to be cooked specifically for the production of the chili. After calculating the costs for the first scenario, the total cost was $0.3615/8-ounce bowl and $0.5073/12-ounce bowl. Under the second scenario, the total cost was $0.5795 and $0.8343/12-ounce bowl. Both of which ring up well below selling price, resulting in a profit. After calculating the weighted average cost for both the 8 and 12 ounce bowl of chili, both costs are favorable after comparing them to the selling price. (6) I would not recommend dropping the chili. Under full absorption costing the chili appears to be unprofitable, but given that, full absorption costing also adds in unnecessary costs such as meat. The meat is a variable cost in that its costs vary on the percentage of time that not enough “well-done” hamburger patties have been left over. The out-of-pocket and joint cost analysis paints a far better picture at the true cost of a bowl of chili. While my calculations are on the assumption that zero or a small percentage of meat is being purchased specifically for the chili, the numbers will drastically differ if more meat needs to be purchased for the sole purpose of the chili. Currently the numbers prove that the chili is profitable, and that Wendy’s should not drop the chili from the menu.