Franchisee: Wendy’s trying to take its stores ‘on the cheap’

One of the country’s largest Wendy’s franchisees is charging the burger chain with trying to take its restaurants at a bargain price. Wendy’s is suing to terminate the longtime franchisee, DavCo, which has more than 150 stores, mostly in Virginia, Maryland, and Washington, DC, for allegedly refusing to remodel its restaurants. DavCo filed legal papers claiming the renovation program is “economically unfeasible” and that Wendy’s had already agreed to a modified plan before suing the franchisee .

Wendy’s renovations cost from $450,000 to as much as $1.9 million per store. For context, the average sales of a Wendy’s restaurant are an estimated $1.4 million a year.  DavCo also says the remodels would total at least $75 million, and argues that Wendy’s “Image Activation” program will make it impossible for owner/operators to turn a profit. According to Nation’s Restaurant News, quoting DavCo’s court filings:

“In the four years since the introduction of the Image Activation concept, there have been no fewer than eight different remodel designs, with a ninth just added for remodeling of certain lower volume restaurants. … The reason so many different design iterations have occurred in such a short period of time is that … the remodeling costs are so excessive as to prevent the possibility of achieving any sustained return on investment … in all but a select few cases.”

DavCo charges that Wendy’s is using the remodeling demands as a ruse to “take over its restaurants on the cheap” and that it has turned down Wendy’s offers to buy its stores since 2010. 7-Eleven franchisees have leveled similar accusations against their franchisor, saying 7-Eleven finds pretexts for termination, takes stores and resells them for a profit.

The lawsuit is being tried in Ohio, which has no state law protecting franchisees against unfair terminations. Wendy’s is headquartered in Ohio, and its franchise agreement guarantees Wendy’s the home court advantage by protecting the franchisor’s ability to sue there.