Remodeled Wendy's units exceeding 25 percent sales growth

Wendy's highlighted its "Image Activation" efforts during Thursday's Investor Day and outlined new initiatives for its product line and marketing strategies.

A big piece of the company's Image Activation plan is restaurant remodeling. Abigail Pringle, SVP of strategic initiatives and planning, presented some results from restaurants that have already been upgraded, and introduced a tiered investment system for franchisees planning to adopt the changes.

"Image activation is more than a remodel; it's also about activating the overall customer experience. That translates into financial performance," she said.

The units that have been remodeled so far are exceeding sales targets of more than 25 percent, she said. More than 80 percent of that sales growth has been driven by transaction growth.

"We're seeing gains across all dayparts and product categories, and we're seeing the sales gains sustain themselves over time," Pringle said. "In addition, we're very encouraged to see a big boom in dining room sales."

In Canada, for example, 95 percent of post-remodel sales growth has come from dining room customers.

"Customers who used to do carry out are now staying in the restaurant," Pringle said. "And a higher check comes from those who are dining in."

Solution for higher costs

Wendy's estimates the prototype restaurants cost between $650,000 and $700,000. Pringle said this is a 35 percent reduction from the initial estimation, and costs were reduced by maintaining elements preferred by customers based on their feedback, refining materials and making structural changes.

Also, Wendy's has introduced a tiered strategy.

"We have a diverse restaurant system. We can't have one solution for all restaurants. Our tiered strategy includes the full design for tier I. Tier II will maintain most of the critical elements customers want to reward us for. And Tier III will have a few less bells and whistles."

Tier I will be available in the fourth quarter, while the other two designs will be ready to go in 2013.

Steve Hare, Wendy's chief financial officer, said the returns on each tier are expected to be:

  • Tier I: Investment is $650-700K, with a sales lift of 25 percent;
  • Tier II: Investment is $500K, with a lift of 15 percent;
  • Tier III: Investment is $300K, with a lift of 5 percent.

"Our competitors are doing reimaging and spending $250,000. We did that and there was a minimal sales lift. It didn't revitalize the brand or create a competitive advantage. Nobody said 'wow," Hare said. "If you spend less money, it's easier to finance, but it doesn't move the needle. We've got to do more than that. This is a game changer."

Marketing plan

Also during the presentation, Wendy's chief marketing officer Craig Bahner, who joined the company in April, outlined the brand's messaging strategies for accelerated growth. The key building blocks include:

  • Driving customer visits and building the brand (higher transactions);
  • Building the product pipeline;
  • Driving key occasions and target opportunities;
  • Getting the price/value equation right; and
  • Exploding in the digital space – "leading and winning."

Wendy's early efforts have featured two spokespeople – Wendy Thomas, daughter of the late founder Dave Thomas, and "Red," a woman who is "always in the right place at the right time," according to Bahner, and who communicates the chain's new tagline: Now That's Better.

Bahner said Wendy's has been taking a more holistic approach to its messaging, and it has paid off so far. For example, the Spicy Guacamole Chicken Sandwich, introduced in March, was featured through TV, email programs, social media, radio and more.

"We surrounded the consumer with this idea and the product exceeded expectations. But the real plus was  premium chicken sandwich sales also went through the roof. Our average weekly units were up 17 percent during the period, compared to the past 12 months," he said.

Wendy's has numerous opportunities to increase its occasions and will work on its beverage line, as well as its late night daypart to do this. Bahner said they're off to a good start: since the introduction of Redhead Roasters last year, Wendy's coffee sales have been up 25 percent.

"We're lagging on teas, coffees, specialty coffees and frozen coffees. There is a big opportunity there and we will address those areas," he said. "My vision for this brand is that we make this where you want to have our cup of coffee in your hand."

Also, the company plans to increase its messaging toward the Hispanic consumer, since the demographic is growing rapidly.

Bahner added that the company is currently working on/testing other mobile, social and gaming initiatives. Its customer service department is now on social media, its mobile app is now live through Google Play and Android (with Apple expected to be launched soon) and it's in the process of relaunching Wendys.com.

"Platforms to enable digital couponing, loyalty programs, geographic targeting, mobile ordering mobile payments – these are all things we're working on now," Bahner said. "These are platforms that will take us to the next level."

Menu initiatives

Finally, Wendy's culinary team presented new products that are in the pipeline. Gerard Lewis, SVP of Culinary Development, said he wants to be the first to market the innovation of flatbread, and continue to strengthen Wendy's No. 1 position as a salad destination.

The company is currently exploring a caramelized peach salad with mango vinaigrette, as well as salads that feature pears as a topping, a strawberry field salad and a curry chicken salad wrap. Wendy's, the team repeatedly pointed out, is able to specialize in salads because it has a fresh, not frozen, supply chain.

Wendy's also is currently testing grilled flatbread chicken sandwiches, including a buttermilk chicken sandwich, and a Black Label cheeseburger with Portobello mushrooms and Muenster cheese.

"Grilled chicken on a hamburger bun is yesterday's news. We are exploring flatbread as a carrier for chicken and we want some really nice flavors out of that," Lewis said.

Wendy's also is exploring other types of breads such as a cheddar/jalapeno bun and a pretzel roll. "This will allow us to offer something you won't find at other QSRs. This will be special," said Lori Estrada, VP, Culinary Development.

With these types of products on the radar, CEO Emil Brolick anticipates Wendy's to be on the forefront as the QSR segment increases its market share.

"QSR represents 78 percent of all traffic in the industry and I think you'll see that pattern continue. Traditional QSRs are stepping their game up and doing a more effective job of engaging with consumers," he said.

And while Wendy's will continue to compete with those traditional QSRs, the company is keeping its eye on the growing fast casual segment.

"Fast casuals have done a great job gaining status on perceived quality. We are working very hard at packaging and presenting food, and getting people to know about our perceived quality, too," he said. "I have great confidence we'll bring this to life."

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