Wendy's

Executive Summary

Wendy's offers a variety of fast food. The food selection ranges from hamburgers, French fries, salads, chicken, potatoes, and chili. Wendy's income is based on the sale of fast food. The demand of Wendy's service is highly elastic. A change in price will affect demand for products. Wendy's market structure is an oligopoly and has two main competitors; McDonalds and Burger King. In an oligopoly, the market is dominated by a few large producers of a homogeneous or differentiated product. Because of their "fewness," oligopolies have considerable control over their prices, but each must consider the possible reaction of rivals to its own pricing, output, and advertising decisions (McConnell & Brue, 2005). Since there are many substitutes, Wendy's has to be willing to keep their prices and quality of food relative to competitors.

McDonalds and Burger King offer substitutes to Wendy's food. Advertising and promotional offers can help Wendy's stay competitive. Wendy's also has to be observant of economic trends. Raises in inflation and food costs will affect the demand for fast food. However, inflation and food costs should also affect McDonalds and Burger King. Therefore, Wendy's market share should not be affected if they raise prices collectively with McDonalds and Burger King.

In the future, there is a chance for a healthy fast food restaurant to enter the market. Society is leaning towards a more health conscience population and the fast food industry will have to adjust. Wendy's and its competitors currently offer salads. Wendy's should consider offering healthier menu items and increase advertising to gain market share. Investing in advanced technology will also keep Wendy's competitive. More technology will result in higher productivity and lower average total cost.

Description of Utility of the Good or Service

Wendy's is a fast food restaurant that provides an alternative to home cooked meals. The convenience of their products is not a necessity but can be considered as a luxury. In the past, women were not in the work force and stayed home to tend to household chores. Chores included tending to the children, cooking and cleaning. In the twentieth century, women had begun working outside of the home. In addition, there has been an increase with single-parent homes. The work day has also increased in hours. These factors have increased the demand for an alternative to home cooked meals. Wendy's offers fast food at an affordable rate. Time that would have been spent in the kitchen can now be spent with family or running errands.

Fast food also serves as an alternative to traditional restaurants that seat customers and offer full course meals. The meals offered at traditional establishments are priced higher than fast food restaurants. In addition, the time spent at a traditional restaurant is significantly more than time spent getting food at a fast food restaurant. For added convenience, most fast food restaurants offer seating for customers who wish to dine-in.

Description of Substitutes and/or Complementary Products

Wendy's competes in local, regional, national, and international markets. Wendy's mainly competes with Burger King and McDonalds on all market levels. Burger King and McDonalds offer the same types of foods as Wendy's. Each fast food chain, however, offers something that the others do not. For instance, Burger King and McDonalds sell fish sandwiches all year, while Wendy's only sells fish during Lent. On the other hand, Wendy's offers chili while Burger King and McDonalds only sell chili in certain markets, or not at all.

Wendy's doesn't offer many complimentary items. Items sold at Wendy's can be eaten alone or with other products. French fries usually complement sandwiches but can be eaten alone. Wendy's offer a combination meal that includes a sandwich, fries and a drink since the items are usually purchased together. With the change in culture to a more health conscience environment, Wendy's allows side salads as a substitute for French fries.

In the immediate future, there may be a chance for a healthy fast food restaurant to enter the market. In general, the oligopolies in the food industry have large marketing budgets that hinder others from entering into the market. In addition, the members of the oligopoly can begin a price war to deter other entrants into the industry. However, it is conceivable that a healthy fast food restaurant may emerge in the near future. The fast food industry may have difficulties advertising against a healthy fast food restaurant, since the current culture is health conscience.

Price Elasticity of Demand

The price elasticity of demand is relatively elastic. If McDonalds and Burger King have promotional sales and Wendy's does not follow suit, the demand curve for Wendy's food will shift to the left, reflecting a decrease in demand. Due to the decrease in demand, Wendy's will have more supply than usual. The supply curve will shift to the right. On the other hand, if Wendy's raised the price on their food and other competitor prices remain the same, demand for Wendy's food will decrease. Another factor of demand for Wendy's food comes from a healthier culture. The shift in society has been to a more health conscience population. Demand for fast food had decreased as a result of high fat content in many of the foods.

Wendy's can adjust to a decrease in demand by increasing promotions and advertising. Having a promotional low-fat sandwich and extensive advertising will result in the demand curve shifting to the right. Another method to counteract a decrease in demand is to offer reduced prices for popular selling items. For example, Wendy's could offer fifty cent junior cheeseburgers for a two week period. This type of promotion will get consumers back into Wendy's and should boost the sell of French fries, since the two are usually sold together.

To counteract the demand for a healthy fast food restaurant, Wendy's will have to promote healthy items. Wendy's has taken steps to include nutritional facts on their website and offer healthy menu items. They have increased their selection of salads and have collaborated with the American Diabetes Association to help family's select menu items for a healthier lifestyle (www.wendys.com). Advertising healthier menu items is an important part of countering restaurants that offer health food.

Issues