Wendy's Remodel Offers 'No ROI," DavCo Counters in Lawsuit
Wendy's is suing DavCo, its fourth-largest franchisee.
DavCo slapped back this week against Wendy’s lawsuit filed in December, claiming franchisees “stand to make little or no return on their investment” in the franchisor’s mandated remodeling program.
Further, DavCo called the required point-of-sale system, dubbed Aloha, “so fraught with serious technical and operational problems that Wendy’s itself has called them unreasonable in written communications with franchisees.”
The capital costs required for these projects “substantially exceed DavCo’s income and internally generated cash flow,” its counterclaim said, and making the investments would “significantly increase the risk of insolvency for DavCo.”
DavCo is Wendy’s fourth-largest franchisee and the first to publicly defy Wendy’s so-called Image Activation program, so its response is being intensely watched by other operators and attorneys.
W. Michael Garner, an attorney with Garner & Ginsburg in Minneapolis who represents the Wendy’s franchisee association, wrote in an email DavCo’s counterclaim “tells a story quite different from Wendy’s.”
Wendy’s said it is “confident in our position and had no other choice but to file suit,” according to an email from spokesman Bob Bertini. “We believe the vast majority of franchisees support our initiatives to grow the Wendy’s brand.”
DavCo blasted management turnover at Wendy’s over the last 10 years. “In that time period, Wendy’s has had four different CEOs, four different CFOs, four different COOs, and three different” chief technology officers.
One result of all the changes, DavCo claims, is that people who made representations to DavCo regarding “financial commitments required of its franchisees were replaced, causing those representations to be willfully ignored.”
DavCo says it and Wendy’s signed a “binding letter” in 1997 outlining modifications to the franchise agreement and exempting DavCo from additional remodeling capital expenditures in the future, according to its response.
In its claim, DavCo estimates refurbishing its restaurants under Wendy’s plan would cost “at least $55 million in present dollars for the first 60 percent of its restaurants,” and “at least $20 million more” for the remaining 40 percent.