Wendy's, the world's third-largest fast-food chain, is suing the Crofton-based operator of its restaurants in Maryland, Virginia and the District of Columbia for refusing to modernize restaurants and install technology that allows customers to order and pay on mobile devices.
Wendy's International LLC filed the lawsuit against DavCo Restaurants LLC and DavCo Acquisition Holding Inc., a Wendy's franchisee since 1976 that runs 152 restaurants. The Dublin, Ohio-based chain is seeking to strip DavCo of its franchise agreements.
Wendy's says its franchisees are required to make upgrades that enable it to compete with newer and fast-growing competitors in the quick-service food category. DavCo says Wendy's lacks authority to force such changes, according to the breach-of-contract lawsuit filed Dec. 22 in Ohio.
"DavCo, a longtime franchisee of Wendy's, apparently believes that the guidelines announced by Wendy's, to be followed by all U.S. and Canadian franchisees, simply do not apply to it," the lawsuit says. "DavCo's conduct threatens to undermine the value and reputation of the Wendy's brand."
DavCo President David J. Norman could not be reached Tuesday for comment. DavCo has not filed a response to the suit, and no attorney was listed for it in the court docket.
According to the lawsuit, DavCo contends that Wendy's does not have the authority to force it to comply with changes in technology or decor.
Wendy's is requiring franchisees to buy and install new point-of-sale computer technology by July 1 that links to systemwide marketing and promotions and allows customers to order and pay on mobile devices.
"Consumers today and in the future will require and expect a level of service and convenience involving, among other things, mobile ordering, mobile payment and various kinds of loyalty programs, which Wendy's cannot feasibly and efficiently provide on the outdated POS systems in most Wendy's restaurants," the lawsuit says.
More than 2,500 of the 6,500 Wendy's locations have installed the new system, which also is used by competitors Chipotle, Chick-Fil-A, Pei Wei and Dunkin' Donuts. Wendy's said it agreed to pay the software license fees for all franchisees that had registered for the program by last March.
Wendy's operators are also required to renovate restaurants at Wendy's request, as often as every five years. Many of the Wendy's run by DavCo are outdated, the lawsuit alleges.
Upgrading restaurants is crucial for one of the older restaurant concepts of its kind because "fresh concepts are opening at an increasing rate," the lawsuit says.
More than 600 restaurants have been remodeled over the past few years under Wendy's latest store upgrade program, the "Image Activation" initiative.
The chain is requiring U.S. and Canadian franchisees to refurbish at least 60 percent of their stores over the next six years at a rate of 10 percent a year, with the scope of remodeling determined by a restaurant's annual sales. Restaurants with annual sales above a certain threshold must overhaul the property, while lower-performing locations must refresh decor and furnishings, under the initiative.
DavCo, which is required to complete 15 restaurant overhauls a year, has refused to purchase the new technology or move forward with refurbishments, according to the lawsuit.
Wendy's said it attempted to resolve the dispute before filing the lawsuit.