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Wendy's continues to support coffee program despite breakfast pullback

CFO says QSR space is more competitive than ever this year.

March 13, 2013 by Alicia Kelso — Editor, QSRWeb.com

During this morning's presentation at the Bank of America Merrill Lynch Consumer & Retail Conference, Wendy's CFO Steve Hare painted some color on why the brand has pulled back on its breakfast offerings.

There are now only about 400 restaurants in the Wendy's system serving breakfast.

"For last couple years we've been trying to come up with differentiated menu to allow us to effectively compete in the breakfast daypart. We were really the only hamburger QSR that didn't," Hare said. "We think we came up with a good menu, but we just didn't see traction in many markets. It is a little frustrating."

Hare didn't pinpoint why, exactly, traction didn't transpire, but does admit there were some local marketing and execution inconsistencies. To avoid losing more money on the effort, Wendy's recently pulled the breakfast menu from about 300 restaurants.

"It was a tough decision; about 25 percent of traffic in QSR comes in the morning daypart. We want to be a player. But the reality is, without seeing traction, we made the decision to pull back," he said.

There is positive impact from that decision: Wendy's was supporting most of its advertising dollars around its breakfast lineup, which the company will gain back, and operating costs from the extra items/labor will also be regained.

"The advertising and operating-loss elimination will cause favorable margins for us going forward," Hare said.

Still, with the staggering growth and opportunity in the QSR breakfast space, Wendy's isn't fully giving up on its morning offerings, which include artisan egg sandwiches and bacon fire-roasted burritos. It may just be awhile before breakfast is ramped up again.

"We don't have immediate plans to jump back in. But we still have 400 or so serving breakfast and will continue to maintain and support those," Hare said. "We'll also continue to work on our coffee program and build on that during the day to build awareness."

Focusing on the coffee platform — a proprietary blend called Redhead Roasters — keeps the door open to bring breakfast back down the road, he added.

Competitive pressures

In the meantime, Wendy's is going to continue focusing on its value-premium mix, elevated by the new Right Price, Right Size menu, to stay competitive.

"This business is competitive every year and, if possible, this year is even more competitive," Hare said. "Not only do you have the traditional battle for market share, then of course you have the 'new QSR,' (fast casual) which is higher quality, and the emerging convenience store growth. This is as intense as we've ever seen it."

Prior to the Right Price, Right Size menu — which was introduced in the beginning of the year —  Hare admitted Wendy's struggled with inconsistency in value-to-premium pricing. With the new menu, there are 18 items available from 99 cents to $1.99.

"Our franchisees like brining out premium products that are better, but in this environment, especially with this economy, you have to find consistency. We want to provide compelling value to customers, but it has to make sense for franchisees," Hare said. "To drive traffic in QSR, you have to have a compelling message to discount consumers."

Wendy's, Hare added, has had conversations to even extend the menu, and will increase its promotional messaging.

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