Wendy's CEO: We have fast casual experience at 40 percent lower check

Jan. 14, 2014 | by Alicia Kelso

Wendy's A Cut Above strategy is resonating with consumers because they are now expecting the "new QSR standard" that strategy represents, CEO Emil Brolick said Monday during the company's Q4 and full-year 2013 earnings call.

For the past year-plus, Wendy's has been leveraging the message of having fast casual-quality experiences and food, but at QSR prices.

"We are giving a new QSR quality experience, but we are charging the same price as our traditional competitors. Versus the 'new QSRs' (fast casuals), we are giving people a comparable experience, but at a 40-45 percent lower average check," Brolick said. "Our brand positioning is unique. It's working in the marketplace and we believe it has significant legs in front of us."

He added that Wendy's is positioned well in the $435B restaurant industry as part of the "sweet spot" QSR segment.

"Quick-serve restaurants have done the best job of delivering the two most fundamental needs consumers have — convenience and value. That is why they have built share against mid-tier restaurants, and casual dining restaurants, over five years," he said. "We believe this trend is going to continue."

To hit on that trend, the company will continue its barbell menu strategy first introduced in 2013. The Right Price Right Size Menu, alongside premium products, has had "a lot of success," Brolick said.

"We are fortunate to be in a position where we don't have to fall into the trap of simply lowering price to create value," he said.

Remodeling and marketing

Restaurant remodels are also part of the company's plan to compete with fast casual concepts. The company remodeled 100 company and 99 franchised restaurants last year and expect to double that pace in 2014.

CFO Todd Penegor estimated, with remodels and new-builds, there will be a total of 410-460 image-activated restaurants during this year, which will bring the total to 700-750 by the beginning of 2015. Reimages have been experiencing "sustainable" sales lifts between 10 and 20 percent.

"We believe, with our new design, that we can actually upgrade to the market conditions where that restaurant competes. This is where we want to evolve. And we're very proud of this restaurant and look to really push this forward," he said.

The company's prototype design falls in the range of $450,000 to $650,000 with about five weeks of closure time.

The company has also been working on system optimization through the sale of its company-owned restaurants to franchisees. This effort has allowed Wendy's to generate higher operating margins, Penegor said.

"We have tremendous excitement coming into the system and we're getting a lot of 5-star franchisees," he added. In 2013, Wendy's sold 243 restaurants, generating about $138M. Another 141 restaurants are under contract and expected to sell in Q1.

Finally, the executives discussed Wendy's marketing focus and its continued holistic approach — using broadcast, digital, social and PR. Brolick said the TV campaign featuring spokesperson "Red" is the most successful campaign the brand has had since Dave Thomas in 2002.

"Our communications are resonating with consumers. We see that total brand communication awareness is at levels that we have not seen since 2005 and we expect that to continue," he said, adding that mobile ordering and mobile payment are two channels that will help increase brand access.

Earnings highlights

Wendy's North America company-operated same-store sales were up 3.1 percent in Q4 2013.

Wendy's North America company-operated same-store sales were up 1.9 percent in FY 2013.

Read more about operations management.

Topics: Food & Beverage , Franchising & Growth , 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.
View Alicia Kelso's profile on LinkedIn

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