Wendy's CEO: More product innovation to come

July 24, 2013 | by Alicia Kelso

Wendy's most anticipated product launch in recent history — the Pretzel Bacon Cheeseburger — is starting to yield returns, and the company anticipates a longer pipeline of similar products that fit its "new-QSR quality at a QSR price" messaging.

"Part of (Wendy's) equity is a heritage of product innovation and I believe people give us credit for having higher ingredient quality characteristics," said CEO Emil Brolick, during Tuesday's Q2 earnings call. "You'd be hard-pressed to find (the Pretzel Bacon Cheeseburger) other than going to a (fast casual). We're not going to get caught up in trying to play the same game better. We're going to play a different game."

Brolick added that the company's pipeline provides more "exciting" opportunities for Wendy's to continue positioning itself as a "new QSR," and further differentiate from its value-focused peers.

"There are a lot of people that can afford to go to quick casual restaurants but there's many more that cannot afford or certainly not afford to go on a consistent basis. So when you can give them Pretzel Bacon Cheeseburger-quality products at a QSR price, we think that's a heck of a proposition, and you're going to see more of it," he said.

Still, Wendy's admitted during the last quarter that it did lose some share in the price-value game and has thrown more media weight behind that part of its menu accordingly. Despite this effort, Wendy's will continue to have a higher-end message, which it considers a "top layer" in a tiered strategy.

"What we increasingly realize is just, in an environment where many of large competitors out there have price-value messages on an ongoing basis, that you simply can't afford to step out of the marketplace because some of the price-value customers are just very sensitive to the economics that they face in their life. And you have to give them a price-value offering if you're going to get them to come to your restaurant significantly. So we think this layered approach has really sparked and it's going to pay dividends over time," Brolick said.

Sale of company restaurants

Also on Tuesday, Wendy's announced its plans to sell approximately 425 company restaurants as a "next step in its brand transformation." With this sale, Wendy's anticipates the acceleration of it restaurant remodeling initiative, called Image Activation.

Wendy's plans to reduce its total system ownership from 22 percent to about 15 percent with this sale, expected to be completed by Q2 2014.

Thus far, franchisees have applied to reimage nearly 150 restaurants under the Image Activation program. Approximately, 100 of those restaurants are currently in various stages of upgrades.

Finally, Wendy's initially predicted its restaurant remodels to cost anywhere from $750,000 for its "Tier 1" design to about $375,000 for a "Tier 3" design. Brolick said the company is working to declassify the tiered systems and work toward one general expectation.

"We're going to continue to work the number down, and I think we can get into that $550,000. And quite honestly, our goal is to continue working to get it below that if we can. And the message we continue to send to the franchise system is our goal is to seek the optimum of minimum capital input, maximum sales and maximum EBITDA. And I don't think we've quite found that sweet spot but we're certainly moving strongly toward that direction," he said.

Wendy's execs estimate that the sales lift the already remodeled restaurants are getting is in the high-teens to 20 percent. Into the next year, the company's No. 1 use of capital will be for Image Activation efforts.

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Topics: Financing and capital improvements , Food & Beverage , Marketing / Branding / Promotion , Operations Management , Restaurant Design / Layout

Alicia Kelso / Alicia has been a professional journalist for 15 years. Her work with FastCasual.com, QSRweb.com and PizzaMarketplace.com has been featured in publications around the world, including NPR, Good Morning America, Voice of Russia radio, Consumerist.com and Franchise Asia magazine.
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