Industry News | February 1, 2012 | QSR Exclusive Brief

Wendy's: It's Time to Compete with Fast Casuals

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Wendy's president and CEO Emil J. Brolick unveiled in the company’s fourth-quarter earnings call yesterday a new recipe to "take the brand where we need it to be,” and said reviving the iconic brand will require competing with upstart fast-casual brands.

While Wendy’s North American company-operated same-store sales increased 5.1 percent in the fourth quarter, Brolick said the company faces stiff headwinds from both convenience stores and what he called the "new [quick serves].”

He said restaurants such as Chipotle Mexican Grill, Five Guys Burgers and Fries, and Panera Bread have grown at a compounded rate of 6.7 percent over the past five years and, not including the breakfast daypart, "have gained virtually all the share, or accounted for all the growth" in the quick-serve segment during the last five years.

Removing underperforming employees and ensuring cleaner stores are two lynchpins of Wendy's turnaround strategy, said Steve Farrar, Wendy's chief operating officer. He told investors that the chain had not yet "cracked the code" compared with "the hot emerging brands."

Brolick said the company plans to exploit the higher check average that newer quick serves employ. In the hamburger category, he said, 56 percent of transactions average $5 or less. Meanwhile, at fast-casual restaurants, 21 percent of transactions average $5 or less, he said.

"People are saving some of their premium visits for these new [quick serves]. Why? Because they have a nicer environment," Brolick said. He said Wendy's plans to roll out a more upscale quick-serve experience at a lower price point through the company's reimaged restaurants.

Wendy’s has been testing a new prototype in its home of Columbus, Ohio, and will build 20 and remodel 50 company-operated stores this year in U.S. and Canada. The company plans to proceed with four prototype designs: traditional, contemporary, ultra-modern, and urban.

The company's plan of attack involves not just reimaging stores, but also "reimaging the experience," Brolick said. Wendy's will ask franchisees to "reimage virtually all of their restaurants," including adding common perks consumers now expect, such as in-store WiFi, he said.

“We are clearly not the cool place to go to today," Farrar said, adding that Wendy's store designs have lacked what he called the "wow" factor. Many of Wendy's facilities are "looking dated, old, and rundown in comparison to the emerging new brands," he said.

Brolick told investors the company has 622 restaurants under development agreements outside the U.S. and, in those same areas, he sees potential for another 540 more.

Brolick admitted Wendy's performance was, in large part, the result of "self-inflicted wounds," and he said the company was prepared to take drastic steps to heal those injuries. Those initiatives include not only reimaging restaurants, but also removing low-performing restaurant staff.

"During the construction phase, we saw the opportunity for a complete people reboot," Farrar said.

The reimaging effort will also entail re-interviewing a store's entire staff, retaining only "the five-stars" and "rounding out the crew with exceptional new hires," he said.

"You're going to see us get our pride back, our excitement back,” Brolick said. "We don’t want to have a me-too drink program. We want to have something that really stands out."

By Jan Fletcher