The Review of Wendy’s

Risk Profile of Argentina and Geographic Behaviour

As per the data retrieved from worldbank.com , which shows the GDP per capita growth for Argentina in the year of 1961 was 3.729 which increases in consequent years and has grown to 8.897 in 1965 which was the highest in number till 2018 where it’s in negative figure (-3.5) . The GDP per capita growth always keep on fluctuating across the period of 1960-2018 which shows the purchasing power of the economy, inflation and consumption needs all have been affected.

Being 8th largest in terms of area and 28th in terms of GDP across world, Argentina is rich with its natural resources and diversified industrial base whereas Argentina’s economy is middle-income economy in South America behind Brazil and is also famous for its export oriented agricultural sector. Argentina has diversified inhabitant across the country mainly Italian, Spanish and French, it’s second country in the world with the most immigrants with 6.6 million, only second to the United States with 27 million, and ahead of other immigratory receptor countries such as Canada, Brazil, Australia, etc nevertheless, the country's vast area, and its cultural diversity, have led to a local cuisine of various dishes and consumption of beef has tremendously waved in recent past, no other dish matches the consumption of beef across nation.

Modes of Entry in Argentina Market

Wholly owned subsidiary or Franchising , where both the ways the business opportunities are favourable to the investor as after 1990, Argentinian Government has allowed the FDI and has opt out the regulations which restrict the investors to repatriate the funds and income earned domestically whereas in respect to that the government has off loaded and allowed the repatriation of funds, tax free , and full amount of their capital funds back to the parent or homeland of the company which brings most favourable conditions to boost the economy with Foreign Direct Investment.

For wholly owned subsidiary the corporate tax stands equal to the domestic firms as 33% and stands similar to all economic sectors, whereas for Franchising before 1990 the concept was not so famous among domestic and foreign investors whereas the same has grown fanatically to 620 million after that period around 1994.

Wendy’s Marketization in US 

Wendy's is a chain of fast food restaurants founded on 15th November 1969 and its headquarter is based in Dublin, Ohio and owned by the American corporation Wendy's International, Inc. There are over 6,711 Wendy's restaurants worldwide including 353 that are company-owned. 6,358 restaurants are franchised, and 92% of the system-wide restaurants are located in North America. The chain is currently world’s third largest Hamburgers fast food chain after Burger King and Macdonald’s. Also, it is known for its Frosty dairy desserts, the fact that their burgers are square and made from fresh (as opposed to frozen) ground beef, and its making of all sandwich items to order.

Wendy’s in Argentina 

Wendy’s wants to expand their global presence to many countries and try to achieve the same fortune as MacDonald’s and Burger King with their prime agenda to reach out to consumers of hamburgers prepared freshly and on demand as they did in US market and achieve success. With the same approach they enter into the market of Argentina with an expectation of success and building their brand name among the local and international market players of fast food.

Whereas Wendy’s reach to the Argentina Market in 1995, near the close of 1997, Wendy's had only 11 outlets operating in Argentina. None of these 11 restaurants were franchise operations. Rather, all were company owned and operated acquired from its joint venture partner with Argentinean fast-food chain Pumper Nic. In 1997, Wendy's presence in Argentina in terms of the number of restaurants operating, as well as in terms of the company's relative position in the Argentinean market with respect to McDonald's, was unsatisfactory from Wendy's perspective. At later stage Wendy’s has reached out to a total number of 18 outlets which they all shut down in the subsequent year 2000 during which they suffer approximately 3.2million loss and immediately they laid off 800 employees with the desired and regulated compensation as per the laws of union. There were few factors which brings them to this end among which the crisis in Argentina was the most important factor supported by the low consumer demand and low purchasing power

Few other factors were also to be considered for the closing of Wendy’s in Argentina market were- (drop in sales)-the losses they faced were very large and (low turnover) the turnover of each store was very low (High cost of hamburger with the competitive players) they set prices much higher than those in the market and (Wrong location of business setup) probably they did not choose the location of their premises well to add to that there were some Management problems as well.

Although Wendy’s tried to run the business on franchise basis as well but that was an expensive programme they accepted as they have to pay a non-refundable 5000$ and 30,000$ for technical assistance to the applicant whereas applicant does not become an owner an entitled the applicant to commence a training programme intended to allow both the parties opportunity to asses long term relationships. Once all these requirements met the franchisee could purchase the franchise for 350,000$. In addition to that franchisee has to supply the kitchen equipment which costs them around $ 400,000. These were few conditions and investment to become a franchisee for Wendy’s in Argentina.

Keeping other risk factors and government policies in favour of FDI and international firms to start their business in Argentina using the same tax norms and repatriation of capital and earnings, what would be the number of franchised restaurants and in which locations should them to be?

As per the current data, the population ratio between US and Argentina is 7.26 whereas in the year of 1995 the ratio was almost similar to 7.67 whereas the number of restaurant in present Wendy’s have in US is approximate 610,000 outlets and number of franchised quick service restaurant established in US is 194,723. If we compare the usage of hamburger in US and Argentina its one third which gives a nominal figure of number of restaurant could be open in Argentina. So, as per the general calculation Wendy’s could have open 7500 franchised quick service restaurant across Argentina by now considering the population growth and hamburger eaters.

Whereas to define that we can consider the pre-defined formula to calculate and estimate how many outlets could Wendy’s operate in Argentina which is as-

Number of Customer Needed 

As per the survey organised by National Statista 20% of US population reach out to quick service restaurant.

CNRadjusted = 65.4million*(32.7/1.5)

CNRarg = 125,753 number of customers required to operate restaurant in Argentina.

Taking 1/3rd population of Argentina into consideration who favour to eat hamburgers then as per the formula to calculate the total number of outlets to be opened in Argentina comes around 286 outlets which can target the 80% population of Argentina which includes Middle age and youth, where as we have also considered the per capita income of US i.e $60,200 PPP and Argentina as $20,700 PPP with the average consumption of hamburgers and income spent by every US and Argentine to be as 10% of their annual income.

Greater Bueno Aires being the capital and most urban,cosmopolitican and populated city becomes the centre of attraction for any investor to begin any business and as an international brand to reach out to the local and become favourite to their environment it is the best location to open multiple chain of outlet and to provide franchise to the locals alongside Santa Fe, Cordoba and Mendoza comes next to the list to expand the chain and reach out to the local with their advertisement to boost up the sales while keeping the price in mind to be competitive to the local market players.

In Argentina unlike US there are less number of Malls and more of individual units or point of sale which general public prefer to reach out to, so Wendy’s must take this concept into consideration when opening an outlet or giving franchise and should look area where the population is at least 50,000-60,000 where 20% should be the target audience who should reach out to the outlet.

While the labour cost is less in Argentina than USA due to the minimum wages i.e. $3.25 as well as Argentina is 2nd most efficient market in South America basis per capita income and spending’s. Keeping the management into tight control and not downgrading the quality of hamburger will be key areas to grab the market. Wendy’s need to make sure that outlets should be driven with the same values and customer service as in US.

 

 

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