R. DAVID THOMAS

WENDY’S INTERNATIONAL

R. David (Dave) Thomas founded the hamburger chain known as Wendy’s in 1969. Thirty years later Wendy’s International,Inc. was America’s third largest fast food hamburger chain with over 5,000 restaurants in operation. By that time Thomas had retired from day- to-day involvement with the company but continued to appear as the company spokesman in national advertising. Wendy’s success can be explained in terms of Thomas’ perception of a unique market niche, his operational skills and his ability to adapt to changing market conditions. He stands out as a business role model not only in terms of his business skills and ethical principles but also in terms of his ability to overcome handicaps in his youth and his commitment to social causes in his later years.

EARLY YOUTH

Thomas’ first success was in overcoming a high risk family situation. Born on July 2, 1932 and abandoned by his natural parents, he was adopted by Auleva and Rex Thomas. His adopted mother died when Thomas was five years old. His adoptive father continued to care for him through two subsequent remarriages. But neither the father nor the step mothers gave him much love or support and he felt rejected.

Fortunately, Thomas spent summers with his grandmother, Minnie Sinclair. She provided the psychological support that was missing at home and managed to instill in him her basic beliefs in the values of doing quality work, learning to be independent and making the most of what a person has (Thomas, 1991,p.24).

Grandmother Sinclair also introduced Thomas to the restaurant business. She worked as a cook and dishwasher at a restaurant called Salstrum’s. She frequently took her grandson to the restaurant and he developed a love for the atmosphere he found there.

At the age of ten Thomas began a succession of part-time jobs in Knoxville, Tennessee where his foster father was then living. He worked as a gas station attendant, a paper boy, a bowling alley pin setter, a grocery clerk and a drug store clerk. The last job was at a Walgreen’s drug store and ended abruptly when the management discovered he was only twelve years old. He was fired for being under age. That episode turned out to be a defining moment for Thomas because his foster father, rather than comforting him, criticized him. The father’s exact words as recalled by Thomas years later were, “You’ll never keep a job! I’ll be supporting you for the rest of your life “(Thomas, 1991, p.3). Thomas’ response was to make a personal vow never to lose a job again.

TEENAGE EXPERIENCES IN THE RESTAURANT BUSINESS

Losing the Walgreen’s job turned out to be a blessing in disguise. It forced Thomas to look for a new job and this time he found one in the restaurant business. The job was at the Regas restaurant which consisted of a seventeen seat lunch counter. Thomas lied about his age in order to get the job but even after the owners discovered that fact, they decided to let him stay because of his excellent work habits. The owners, Frank and George Regas, subsequently became important role models for Thomas. By their examples they taught him such values as neatness and cleanliness, setting high quality standards, standing up for your employees and setting ambitious goals. It was while he worked for them that he set for himself the goal of one day owning his own restaurant.

A few years later Thomas’ father moved the family to Indiana and Dave had to look for a new job. He found one as a bus boy at a coffee shop called the Hobby House. It was owned by another future role model, Phil Clause. A year later (1947) the father moved again and Thomas decided to stay behind so that he could keep his job. He moved into the local YMCA with the intention of working at the Hobby House on weekends while he finished high school. Soon afterwards he decided to drop out of high school and work at the restaurant full time. At about the same time, Phil Clause convinced Thomas to move out of the YMCA and live with Clause’s sister and her family. There Thomas claims to have had his first experience living with a loving family.

FOOD SERVICE EXPERIENCES AS A YOUNG ADULT

In 1950, at the age of 18, Thomas joined the United States Army. The Army trained him to manage the mess hall and sent him to an eight week cook and baker’s school. He was then sent to Germany where he managed the mess hall at division headquarters. The facility he managed suffered in both appearance and quality of food when he took over. Thomas made improvements in both areas and thereby earned a promotion to assistant manager of the Enlisted Men’s Club (Thomas, 1991, p. 57). He proceeded to increase sales by expanding the menu and adding a new beer garden. As a reward he was made manager of the club.

Thomas left the Army in 1953 and returned to work at the Hobby House as a full time employee. Working with him was a young waitress named Lorraine Buskirk whose spirit and looks appealed to Dave. In 1954 they were married. By 1956 they had two children, Pam and Kenny.

After Thomas returned to the Hobby House, owner Phil Clause decided to expand his business and enlisted Dave as a partner in his expansion plans. The first effort was the opening of a barbeque restaurant with Thomas in charge. That experiment did not live up to expectations due, in Thomas’ opinion, to lack of focus and lack of adequate promotion. But it was a learning experience for Dave and it also provided the opportunity for him to become acquainted with Harlan Sanders, better known as Colonel Sanders.

Sanders had contacted Phil Clause with a proposal that Clause take out a franchise to sell fried chicken prepared using Sanders’ secret recipe. Clause thought the concept would fit the restaurant that Thomas was running and Thomas agreed to introduce the product after sampling it. Thomas advertised the new menu offering as “Colonel Sanders’ Kentucky Fried Chicken.” He initially served it only in the restaurant but soon decided to add a carry-out option. As the carry-out orders expanded Thomas invented a bucket for family size orders. That idea was so successful that Thomas and Clause decided to erect a large outdoor sign consisting of a revolving bucket.

Phil Clause then invested in a group of four Kentucky Fried Chicken stores in Columbus, Ohio and paid Thomas to check on them once a month. The stores had been poor performers at the time of the purchase and Thomas’ monthly visits failed to turn them around. So Clause asked Dave to go to Columbus and work full time at making the stores profitable. As an incentive Clause offered to sell forty percent of the business to Thomas over a period of time (Thomas, 1991, p. 93).

Thomas moved quickly. He replaced all of the existing store managers; he had all of the stores painted; and he instituted tight controls including daily report sheets detailing the cash flow at each store. He also began advertising on local radio and paid for the ads with free buckets of chicken. Finally, after tracking the sales volume of each item on the menu he decided to reduce the number of items carried to chicken, salad, desserts and beverages. The result of those efforts was a return to profitability. Thomas was able to buy a forty percent interest in the fourth store and open a fifth store of his own.

In the mid-nineteen-sixties Colonel Sanders sold Kentucky Fried Chicken to an outside investor group. At that time Thomas bought $10,000 worth of stock in the company. A few years later (1968) he sold his interest in the stores, making him a millionaire.

Nevertheless, he continued working for KFC but in a new job as a regional head of operations. At the same time he invested in a firm called National Diversified which was in a different kind of restaurant business. Then the new head of KFC, John Brown, informed Thomas that the investment in National Diversified represented a conflict of interest. Brown suggested that Thomas resolve the conflict by selling his KFC shares for the price he originally paid. Thomas knew that the shares were then worth four times what he paid, but he complied with Brown’s request anyway and continued to work as a KFC executive.

Not much later Thomas discovered that there had been no conflict of interest. Feeling that Brown had deliberately deceived him, Dave resigned from KFC and filed a suit against Brown and the company. A month later he was given his stock back. Nevertheless, at age 37 he was unemployed.

That situation did not last long. Thomas took a job for $20,000 a year with National Diversified. There he was involved with developing a chain of fast food restaurants named Arthur Treacher’s Fish and Chips. Dave found the work boring and began to think about opening up his own hamburger restaurant.

FOUNDING WENDY’S

The business concept which Thomas developed was that of an upscale hamburger restaurant which offered higher quality (and more expensive) hamburgers. There would be both sit-down and carryout service. Inside the restaurant customers would find a warm, friendly atmosphere with carpeting, Tiffany lamps and old-fashioned advertisements on the tables. The employees, known as crew members, would wear white uniforms with a bow tie for the men and scarves for the women. The menu would be limited – burgers, chili, French fries, Frosties and beverages (Thomas, 1991,p.113). The hamburgers would be made from fresh ground meat and prepared as ordered. This would differentiate Wendy’s from competing fast food hamburger chains like McDonald’s where the burgers were made from frozen patties and prepared ahead of time. The restaurant was named after Dave’s daughter Melinda Lou who had been nick-named Wendy. Thomas simply felt that the name Wendy fit the image he was trying to create.

The first Wendy’s store opened on November 15, 1969. It did not conform to the full vision since it lacked a drive-up window. Nevertheless, it was profitable within six months of the opening. So Thomas opened a second store in November, 1970 and this time the drive-up window was included. Two more stores were opened in 1970. During those startup years Thomas continued to work as an employee of the Arthur Treacher’s restaurant chain. But once the fourth store was in operation he left Treacher’s to devote full time to Wendy’s.

The first store was established in partnership with a close friend (Les Immke). At the time of the opening of the second store Thomas brought in two more partners, Ron Musick and Robert Barney. Both men had been working with Dave at Arthur Treacher’s. Both men purchased shares in Wendy’s and immediately became active in management of the new chain. Included in their management duties was spending time working the grills in the stores. Shortly after Musick and Barney became involved the two stores were merged and the four owners and their wives each signed $150,000 notes as collateral for bank loans to cover the cost of new equipment. By the end of 1971 the partners were convinced that the concept could be profitably replicated nation-wide. In 1972 they opened a new store in Indianapolis, Indiana in order that the company would be established in interstate commerce and could thereby protect its trademarks and copyrights.

By the time the Indianapolis store was opened, Thomas and his partners had developed a clear set of product and service concepts which gave Wendy’s distinction. The product was a limited menu with the hamburger as the star. The hamburger was made distinctive by giving it qualities not found in competing chains – larger, fresh and customized (Thomas, 1991, p.141). This made the price of a Wendy’s meal higher than a meal at competing chains. But Thomas correctly guessed that there existed a customer segment willing to pay a higher price. The distinctive service was achieved by providing more of a restaurant atmosphere as opposed to the carry- out emphasis of the competition (although Wendy’s also provided a carry-out window). A 1989 survey of high standards of service in American industry had this to say about Wendy’s approach (Zemke, p.305).

“The Wendy’s formula is deceptively simple: Instead of mass- producing large quantities of standardized burgers with the same toppings so a large volume of customer orders can be filled quickly from a central holding bin, it handles each customer individually, cooking each sandwich to order. If that means lower volume, so be it. To this day there is only one register and one order-taker at the standard Wendy’s counter; the drive-through lane …constitutes a second order point. By contrast, the basic McDonald’s can handle six to ten lines in front of the counter …

It makes for an interesting choice between fast food and ‘not- quite-so-fast food’ a classic face-off between quantity and quality. Where Wendy’s excels is in serving folks who opt for the latter. It isn’t going to overtake McDonald’s in number of stores or average sales per store, although sometimes in the heat of competition it acts as if it has indeed decided to accept the challenge at that level. When it stays true to itself, Wendy’s typically succeeds in providing a visibly distinctive level of food quality and service. “

Many years after starting Wendy’s, Thomas put together a list of questions an entrepreneur should ask before starting a business. A modified version of that list which he offered as a summary of his own experience is (Thomas,1991,pp.120-126):

1. Begin with one store and use it to learn how the business works.

2. Be sure that your personal plans and goals are consistent with the business

3. Be sure that you understand the sacrifices you may have to make in the beginning (This is the most important time).

4. Don’t try it unless you are confident you can make it happen

5. Stay small until you have the concept right (For example, don’t hire people until you can afford them).

6. Be focused (Know who your customer is; know what your product or service is and where it fits among competing products; know your operating principles and procedures so well, “…that you can explain (them) to others and motivate those people to do their jobs.”).

7. Keep your key costs to a minimum and avoid unnecessary costs such as a heavy investment in real estate.

8. Be familiar with local and national issues that could affect your business (for example zoning and environmental laws).

9. Carefully choose your suppliers and establish good relationships with them.

10. Get the best legal advice you can.

11. Find a good banker who understands your needs and will be able to help you survive and expand.

Thomas’ approach in establishing good relationships with his banker was to pay the bills on time, keep a healthy cash balance, always take a clear and sensible business plan with him when he asked for a loan, and pick a bank with a reputation for standing by its customers.

FRANCHISING

By the time Dave Thomas started the Wendy’s adventure he had extensive experience with franchising. First, of course, he had been a franchisee himself. Second, he had traveled with Colonel Sanders as the Colonel signed up new franchisees. Third, he had managed one of Kentucky Fried Chicken’s regions. Fourth, he had worked on the expansion of the Arthur Treacher’s franchises. With that background, he was ready, willing and anxious to begin franchising of Wendy’s stores as soon as he was convinced that the concept was portable.

Wendy’s began franchising in 1972. The company took the name of Wendy’s International in keeping with the founders ‘ territorial ambitions. The first franchise store opened in Marion, Ohio in March, 1972. In the same year the company established a training facility for franchise operators and named it the Management Institute (Hoover, pp.1116-1117). By 1977 there were 520 Wendy’s stores in the United States and Canada and the company was able to begin national television advertising. By the end of 1978 the number of stores had risen to 1,407. With sales of $800 million that year, Wendy’s had become the nation’s third largest hamburger chain, trailing only McDonald’s and Burger King.

Wendy’s franchisees came from various backgrounds including doctors, lawyers, accountants and oil industry entrepreneurs. Whatever the background, they had to make a common commitment to be trained to manage a Wendy’s store and to then remain actively involved in the business. Thomas signed up most of the franchisees and extracted their commitments to be actively involved. Bob Barney handled the subsequent support and monitoring of the franchisees.

Wendy’s franchising strategy was to sell territories within which the franchisees were expected to open numerous individual stores. It was considered important to grow the chain as quickly as possible and Thomas believed that this could best be done by granting large territories to individuals or groups that had access to the capital needed to build new stores rapidly. Personal wealth was a requirement for consideration as a franchisee. In 1985, for example, Thomas revealed that a person would not be considered as a franchisee unless he or she had $150,000 in liquid assets and $700,000 in credit (Franklin, pp. 149-150).

The franchisees were required to locate and acquire the property for each store with Wendy’s approval and to build the store according to Wendy’s specifications. In addition, the franchisee had to pay a $25,000 “technical assistance fee” for the privilege of being trained in operating methods. Once a store was operating, the franchisee was required to pay Wendy’s royalties of 4 percent of gross sales, plus another 2 percent for national advertising and another 2 percent for local advertising. However, Wendy’s did not attempt to sell fixtures, supplies or food to its franchisees.

While Thomas saw franchising as the key to growth, he also believed that additional company stores should be opened. During the 1980s the company maintained a ratio of 2 franchises for each company owned store.

GROWTH AND CHANGE: 1972-1982

Between 1972 and 1982 Wendy’s expanded rapidly under the leadership of Dave Thomas as chairman and Robert Barney as president. By the end of the first quarter of 1983 the company had 2,271 units in place with 20,000 employees and 10,000 share holders. Sales per share rose from 38 cents in 1973 to $14.91 in 1982 while earnings per share increased from 2 cents to $1.13 over the same period.

That growth was achieved in a turbulent and competitive environment. The combination of inflation and two recessions threatened Wendy’s particularly since the chain was a high price competitor in the industry. Competitive moves by McDonald’s, Burger King and Hardee’s heightened the pressures. In addition, the franchising strategy produced occasional problems of failure to perform. In 1981 Wendy’s acquired 161 underperforming restaurants from franchisees. In spite of the pressures Wendy’s sales increased every consecutive year as did net profit with the one exception of 1979 when the number was marginally below that of 1978.

Thomas attributed the 1979 slump to two environmental factors. First, there was a sharp increase in beef prices (from 72 cents a pound in 1978 to $1.40 in 1979). As a result, Wendy’s had to raise its menu prices. Second, a wave of nutritional concerns had begun to sweep the nation and beef was one of the targets.

Wendy’s addressed the first problem with its first menu expansion. In 1979 a salad bar was introduced. It consisted of fourteen items and seven salad dressings. It was so successful that it triggered a sharp increase in sales in 1980. The next significant menu addition was a chicken sandwich introduced in 1980. A Kids’ Meal was added the same year. Next came the introduction of the baked potato in 1983.

Wendy’s also attacked the sales slump with the introduction of a breakfast menu in 1979. But that concept did not produce the intended results. It was profitable in some locations but not in others. Thomas blamed the poor showing on both operating problems and the fact that in many cases it appeared that the breakfast sales took customers away from the lunch or dinner sales (Thomas, 1991, pp. 148-149). Subsequently Wendy’s partially withdrew from the breakfast business, making it an optional opportunity for franchisees and company stores.

After 1982 Wendy’s continued to experiment with menu additions. Most, such as a SuperBar (hot Italian and Mexican food in a self- serve format) and the full dinner menu, failed to produce acceptable results. One that was particularly successful, however, was the ninety-nine cents Super Value Menu introduced in 1990.

Looking back on Wendy’s history of menu experimentation, Thomas had this advice for future operators (Thomas, 1991, pp. 149-151):

1. “Keep it focused …You can’t be all over the map.”
2. “Watch for creep … If you add an item, ask yourself: What am I going to get rid of to make room for it?”
3. “Manage your in-and-out items tight. We have in-and- out items that are on the menu for a limited time. They create excitement…When we promote (them) on national television, we can’t make them fast enough. Without TV exposure we don’t sell very many. That means it should come off the menu. If it stays on without the promotion, it just takes away from your focus and isn’t special anymore.”
4. “Keep checking to make sure the customer understands who you are.”
5. “Take each item or group of items you offer and look at the whole picture.”
6. “Check the trends. When you look at how Wendy’s menu has changed, very few of the changes were brainstorms we just dreamed up. They were answers to questions like: How do we give customers more nutritious choices? … If people want salads, how do we give them a fresh salad bar? These were all trends coming from new ways people were living, new life styles.”

SENIOR CHAIRMAN AND COMPANY SPOKESPERSON

In 1982 Dave Thomas retired as CEO of Wendy’s International and his long time partner Robert Barney succeeded him. Thomas took the newly created position of Senior Chairman of the Board. He took upon himself the roles of giving advice, sharing in major decisions and serving a motivational, public relations and promotional role within the company. That left him time to become more involved in outside activities including several impressive socially responsible missions.

In the last half of the 1980s the company ran into difficulties. Profits fell from a peak of $76 million in 1985 to $24 million in 1989. Outside observers blamed the decline on, “A loss of focus, failure to pay attention to details and too heavy reliance on clever advertising” (Cook, p.5). Presumably as a result of insistence by Thomas a management shakeup gave James Near the responsibility of restoring sales and profit growth. By 1989 Near appeared to be making progress, even though the numbers did not improve until the next year, so Near was rewarded by being elected chairman and CEO. In addition, in 1989 Thomas began to appear in company advertising as the company spokesperson. After 1989 the profit picture improved dramatically (Net profit was $38.6 million in 1990 and rose steadily thereafter, reaching $180.5 million in 1997). Thomas continued in his role as Senior Chairman and company television spokesperson through 1998.

In electing to “retire” in 1982 Thomas was, in effect, implementing a plan to recruit successor management. By retaining his position on the board he kept himself in position to not only help his immediate successor (Robert Barney) but also work on the selection of Barney’s successor. It was Thomas who spotted James Near’s talents and brought him into the parent company after Near had demonstrated outstanding success as the Wendy’s franchisee for the entire state of West Virginia (1974-1978). Near proved his worth in the turnaround period which actually began when he was installed as president and chief operating officer (Phillips, p.70).

CIVIC LEADER

Dave Thomas had a clearly articulated belief that a business leader’s first responsibility is to make his or her business work and that once that success has been achieved the leader has an obligation to give something back to the community. Thomas gave back in two important ways. The first, and perhaps the easiest way was by making financial contributions to worthy causes. By 1998 he had given over $20 million to children’s causes. That support was focused on the Children’s Home Society of Florida (which helped abused and homeless children), the Children’s Hospital of Columbus, Ohio, and Charity Newsies (which supplied clothing to needy children). In addition, in 1990 he started Wendy’s Corporate Adoption Program which encouraged employees to adopt children and assist those who do adopt by providing financial assistance for medical and counseling. Then, in 1992 he established the Dave Thomas Foundation for Adoption to encourage adoption in general.

The second way in which Dave Thomas chose to give back to society was to devote his time and leadership skills to promote a handful of worthy causes. One such activity was a program which took him into schools where he would talk to teenagers about the importance of staying in school (Achiron, pp.86-88). Since he, himself, was a high school dropout, there was a potential credibility gap there. Here is how he remembers the problem (Thomas, 1994, p.158):

” Students kept asking me: Why didn’t I go back and get my G.E.D.? Wasn’t I supposed to be a mentor after all? I needed to get my G.E.D. in order to go on speaking to high school students.”

So Thomas decided to go back for his G.E.D. He was adopted by Coconut Creek High School near Ft. Lauderdale, Florida and earned his G.E.D. there in 1993. He was voted the person most likely to succeed in the graduating class of that year.

Thomas’ service through commitment of personal time to a cause also took the form of becoming a national spokesman for adoption. He focused on contacting the heads of America’s largest businesses and urging them to adopt a program similar to Wendy’s. That program calls for the company to pay up to $4,000 for adoption expenses for a normal child and $6,000 for a special needs youngster.

CONCLUSION

The career of Dave Thomas offers a variety of lessons for future business leaders. Which ones stand out most sharply depends on the observer. The following were among the many features of the Thomas story which were highlighted by the electors on the day Thomas was selected as a laureate of the American National Business Hall of Fame. “No one else did his homework on the demographics the way he did” (Dr.Charles Stoner, a management professor at Bradley University in Illinois). ” His grandfather image was a somewhat unique advantage which he brought to the company in later years (Dr.Dwaine Tallent, management professor at St. Cloud State University in Minnesota). “Efficient store layout was one of the most impressive things about Wendy’s. They have the best in the fast food industry” (Dr. Ed Knod, management professor at Western Illinois University). “Out of his adversity came a lot of discipline and focus. Yet he was innovative” (Dr. Carol Anderson, marketing professor at Southern Illinois University and later Rollins College in Florida).

Perhaps the final words should be given to Dave Thomas himself. They will be found in the two books which he has authored and which are listed in the references accompanying this biographical sketch.

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This article was written by Dr. Richard Hattwick.

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REFERENCES

Achiron, Marilyn, “Dave Thomas,” People’s Weekly, August 2,1993, pp. 86-88.

Cook, Dan, “Wendy’s Tries Warming up The Basic Burger,” Business Week, August 18, 1987, p. 5.

Franklin, Peter, “Where’s the Beef in Franchising?” Money, March 1985, pp. 149-150.

Hoover, Gary, Alta Campbell and Patrick J. Spain, eds. Hoover’s Handbook of American Business 1994. Austin, Texas, The Reference Press, 1984, pp 1116- 1117.

Phillips, Stephen, ” A New Chef Lights a Flame Under Wendy’s,” Business Week, May 8, 1989, p. 70.

Shook, Carrie, ” Dave’s Way,” Forbes, March 9, 1998, pp. 126-127.

Thomas, R. David. Dave’s Way. New York: G.P. Putnam’s and Sons, 1991.

Thomas, R. David. Well Done! Grand Rapids, Michigan: Zondervan Publishing House, 1994

Zemke, Ron. The Service Edge. New York: New American Library, 1989.