South Australian brands Wendy's, On the Run join forces in retail sales push Phoebe Kretschmer at On The Run, Mile End. Pic: Stephen Laffer. WENDY'S is trialling smaller, cheaper format outlets in a bid to beat rising costs and build a new customer base, opening its first On the Run outlet at Mile End. The South Australian franchise-based treats business, which specialises in ice creams, shakes and hot dogs, will open at two more On the Runs at Glen Osmond and Smithfield in the next few months. The three-outlet trial has the potential to be extended to all of the 90 On the Runs in South Australia and duplicated nationally with other partners. For now though, On the Run-owners Peregrine Corporation and Wendy's have signed a new franchise agreement. The agreement will see On the Run owning, managing and operating the Wendy's mini-outlets with its own staff, who are being trained by Wendy's. Wendy's will supply branding, products and training in return for a percentage of royalties on sales and an ongoing contribution to its marketing fund. The terms of this deal are confidential but Wendy's receives six per cent royalties on sales and a 4 per cent contribution to its marketing fund from other franchisees. "Managing retail occupancy costs to sales equation is one of the biggest challenges for our franchisees," Wendy's chief executive Rob McKay says. Rents have been going up faster than sales. "With the On the Run model, the lease factor doesn't come in and we have additional cost savings," he said. Mr McKay said the convenience channel would also help cater to consumers' changing shopping habits. While shopping centres still provide a lucrative customer base for us, the trend of online shopping is catching up and rents are skyrocketing. We have to adapt to the change and take our model to where the franchisee profits and customers are. This arrangement helps us extend our reach 24/7 to a more transient or mobile customer who might not be part of the typical shopping centre demographic. Separately, Wendy's also announced plans to roll out 18 half-sized stores nationally in centres and at retail strips - commanding an investment of up to $100,000 for an 8-10 sq metre presence compared to up to $250,000 for a 20-24 sq metre traditional outlet. It has 250 stores in Australia and New Zealand. "In a way it's going back to where we started as a hole in the wall and these outlets will focus on the 20 per cent of our product range that accounts for 80 per cent of our sales," Mr McKay said. It's first half-sized outlet opened at Fairview Park in late May. On The Run's general manager Michaela Webster said Wendy's would offer a good mix within its busy stores. "We think people in Adelaide and hopefully in future, regional SA, would much rather buy local and have a Wendy's ice cream or Hot Dog on the run, than spend their money on a generic product," she said.