The next three years will be the most intense period of change in the history of the Wendy's restaurant chain.
This, according to CEO Emil Brolick, will be executed through an "image activation initiative" that includes continued unit remodels, elevated staff performance and customer experience, and a new ad campaign that ties all the new elements together.
Brolick spoke of this strategy, part of the "A Cut Above" brand vision, during this morning's fourth quarter and full-year earnings report. The mission entails price, product, promotion, place, performance and people.
Its execution, Brolick said, is important as competition in the quick-service and fast casual restaurant segments heats up.
"We want to provide a new QSR experience, but at a QSR price. Consumer reference points have changed. They now have more options and new (fast) casuals that are providing them with a perceived elevated food experience, comfortable environment and heightened service," he said. "Our response can't be one dimensional – we need to reimage our restaurants, people, experience, food quality and presentation and brand communication."
Image activation initiative
The image rejuvenation includes the company's current remodeling efforts. In 2011, Wendy's reimaged 10 restaurants with new exterior and interior designs. The company plans to remodel an additional 50 and build 20 new units in 2012.
Brolick said customer feedback with the initial 10 restaurants has been very positive and sales growth has exceeded expectations.
"Based on these results, we are targeting a return on the remodeling investment of approximately 15 percent and intend to use our balance sheet and cash flow to fund the program. As we validate these returns, we will also begin to work with franchisees to develop franchising sources for the program," he added.
Wendy's expects to invest between $750,000 and $850,000 for each remodeled restaurant this year. The company is value engineering the current prototype to come up with a lower per-unit investment in 2013 and beyond, as the program accelerates.
"Contemporizing Wendy's restaurants is the key to growth and prosperity. The physical presence of restaurants positions the Wendy's brand in the minds of consumers," Brolick said. "Importantly, teams like working in the new restaurants."
Wendy's is also working to elevate customer experience and will focus on quality general manager hires, as well as "five star" – positive, skillful – employees.
Additionally, the company will introduce a new ad campaign in April, even though Brolick called the current "You Know When It's Real" tag the company's best since the Dave Thomas campaign ended in 2002.
"We know we can take it to another level. Too many consumers don't have top of mind knowledge of what makes Wendy's better, different. Our goal is to compete for share of mind, not just to sell products; to make an emotional connection with consumers," he said.
The final piece of the puzzle for Wendy's image activation efforts comes with its products – existing and new. Within the next several months, guests can expect news on a menu classic, with a spicy guacamole chicken club, as well as a new twist on natural-cut french fries, premium seasonal salads, and new premium hamburgers.
Additionally, Wendy's breakfast line – which has rated high on key consumer metrics – will expand this year, starting in the Northeast region of the U.S.
"Image activation is one of the most exciting things to happen to our brand in decades. It has created a more positive environment for our teams, and that leads to a more positive environment for our guests," Brolick said.
Q4 and full-year results
Brolick added that Wendy's changes have started to bring about some positive results, but there is still a long way to go. For starters, the company turned in a full-year same-store sales increase of 2 percent at its North American company-owned restaurants.
The company's Q4 profit was $3.9 million, or 1 cent per share, compared with a net loss of $10.8 million, or 3 cents per share, last year, when it was part of the Wendy's/Arby's Group. The company sold the Arby's chain to Roark Capital in June.
Additionally, consolidated revenues were up 5.6 percent in the fourth quarter, to $615 million.
Wendy's plans to ramp up its capital spending this year by $78 million, to $225 million total. This will be broken down as such: $40 million in new units; $40 million in remodels; $65 million in restaurant equipment/maintenance; $20 million in product development; $30 million in technology; $30 million for other expenses.
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