Article

Wendy's to increase focus on Hispanic market, morning daypart

Company experiences second quarter same-store sales increase of 3.2 percent.

August 9, 2012 by Alicia Kelso — Editor, QSRWeb.com

Wendy's is continuing to see positive signs from its turnaround strategy, called "A Cut Above," with a second quarter same-store sales increase of 3.2 percent at North American company-operated stores.

The numbers were driven by improved operations, new products and an integrated marketing plan, said CEO Emil Brolick during today's earnings call.

Also during the second quarter, average checks were up, driven by April's launch of the Spicy Guacamole Chicken Club, May's launch of the signature sides and June's launch of the Berry Almond Chicken Salad.

"We're encouraged, but we're not satisfied," he added.

To continue its momentum, Wendy's will accelerate remodeling plans in 2013, continue to improve its customer service scores by training "five-star" employees, have a more consistent presence in the Hispanic market, optimize restaurant utilization by driving awareness of its late-night daypart and offering more morning daypart access.

Reimaging

Brolick pointed out that the image activation strategy is the company's most important initiative. "It enhances all dimensions of Wendy's total experience," he said.

The 10 prototypes that debuted in 2011 continue to experience sales lifts greater than 25 percent. Additional image activation prototypes have recently opened, including a traditional design in Philadelphia and an urban design in Orem, Utah. Both are producing "significant" sales increases consistent with the 2011 units.

The company is on track to have 100 company-owned units reimaged in 2013; and at least 20 new restaurants opened, a majority of which will be a Tier I investment ($650K to $700K).

Wendy's also expects 100 reimaged franchised restaurants in 2013, and 50 percent of the entire system to be reimaged by the end of 2015. The company will continue to remodel its restaurants based on a three-tiered investment and anticipated return:

• Tier I - $650,000 to $700,000 investment; 25-plus percent ROI
• Tier II - $500,000 investment; 15 percent; and
• Tier III - $300,000, 5 percent.

Other focuses

Customer service. Through the My Wendy's initiative, the chain's customer service scores are "significantly above" where they were in 2011, according to Brolick The training is based on six promises: saying "yes," showing pride, being friendly, saying "thank you," making guests happy, and greeting guests.

"We want the customer service to be a reliable and predictable experience every visit. Customer service score improvement correlates to a sales increase," Brolick said. "Every 10 point improvement in the score correlates to about $46,000 in additional sales per restaurant."

Promotions.Wendy's two-tiered advertising campaign – featuring Wendy Thomas in one series of ads and a character named "Red" in another – has resonated well with consumers and has provided a "holistic impression" of the brand, Brolick said. He added that the Wendy Thomas and Red campaigns work together to tell the Wendy's story – Wendy is about family values, quality and freshness, while Red presents better choices and products.

Additionally, Wendy's new mobile app has already yielded an increase in consumer engagement. Since its July 16 launch, the My Wendy's app has 26,000 users, and time spent with the app is three times longer than time spent on the Wendy's website.

Another initiative is to increase the company's presence with the Hispanic market. "We have a major opportunity to increase our relevance among Hispanic consumers. It's an important sales opportunity," Brolick said.

Restaurant utilization. Finally, Wendy's looks to benefit more from the late-night and morning daypart opportunities. Late-night business has historically been strong from the brand, but before this year, it hadn't been actively supported since 2005. In May, Wendy's began driving awareness of its late-night offerings and sales are up 7 percent since then.

Morning access remains a long-term opportunity for Wendy's, according to Brolick, and the company anticipates a methodical rollout. "The morning meal has been the strongest in QSR for the past five years and it's projected to remain strong," Brolick said. "We want our share of this business and we're making refinements with the goal of offering consumers something different."

Beverages will play an important role in the breakfast ramp up, and Wendy's Redhead Roasters coffee line will be included in all image activation restaurants.

Second Quarter highlights

Financial highlights from the quarter include:

• Consolidated revenues were $645.9 million, an increase of 3.8 percent compared to $622.5 million in Q2 2011
• Wendy's North America Company-operated restaurants generated a same-store sales increase of 3.2 percent. This is the fifth consecutive quarter of positive same-store sales.
• Franchise same-store sales in North America also increased 3.2 percent during the quarter.
• Company-operated restaurant margin was 14.1 percent, a 20 basis-point improvement compared to 13.9 percent in the second quarter of 2011. Same-store sales growth and a favorable product mix drove the margin improvement. Offsetting this positive impact were higher labor costs as the company invested in its "My Wendy's" customer service initiative, as well as higher commodity and paper costs.
• The Wendy's system opened 13 new restaurants and closed 47 restaurants during the quarter.
• The company closed 19 underperforming restaurants during the quarter, and franchisees closed 28 units.
• The company acquired 30 franchised Wendy's units in the Austin, Texas market during Q2; and the company acquired 24 franchised Wendy's units in Albuquerque, N.M. during July.

As of the end of the quarter, Wendy's included 6,547 restaurants worldwide.

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