News
Arby's initiates turnaround plan
March 4, 2010
Roland Smith has led Wendy's to a much stronger position as the company reports its fourth quarter and year-end results for the period ended Jan. 3 since taking over as president and CEO of Wendy's /Arby's Group. While Wendy's has made some progress in reducing its operating margins, Arby's, however, has far to go.
For the quarter, Wendy's reported a decline in its North American systemwide same-store sales of 3 percent; company-operated comps were down 4.1 percent due to the effect of those stores removing breakfast and 3.1 percent excluding that impact. Franchise-operated same-store sales were down 2.6 percent.
For the year, Wendy's North America comps were down 0.7 percent, with company-operated stores down 0.3 percent excluding the impact of removing breakfast. Franchise-operated same-store sales were down 0.3 percent.
Smith told investors on the company's earnings call that Wendy's has made outstanding progress on its company-operated restaurant margins, improving 330 basis points in 2009, which was significantly ahead of its target 160 to 180 basis points of improvement for the year. The company is well over halfway to 500 basis points of improvement after just one year.
Other initiatives for 2009 include formation of a new purchasing co-op and the repositioning of the brand, such as the introduction of Wendy's advertising campaign, You Know When It's Real, a more effective value strategy and a stronger focus on product innovation. Product introductions included boneless wings, the premium Bacon Deluxe Cheeseburger, and 99-cent Spicy Chicken Nuggets.
For 2010, the company expects positive same-store sales as it continues to focus on a mix of value and premium products. The company also will implement a new store-by-store pricing strategy and focus on reimaging its company stores to help improve sales.
The chain's value strategy has already improved North American sales for 2010, with January's promotion of the new 99-cent Spicy Chicken Nuggets leading to a 0.3 percent increase in company-operated same-store sales. However, severe weather in much of the United States negatively impacted February sales trends. The new Bacon & Blue hamburger launched in February is the first of several premium products planned for the year.
Wendy's also plans to expand its breakfast menu test this year with a nationwide launch in late 2011. Some of the new breakfast products include a toasted, artisan-muffin egg sandwich with bacon or sausage, a grilled panini egg sandwich with thick-cut applewood smoked bacon, skin-on roasted potatoes, fresh fruit and a new premium specialty coffee.
"We are making great strides re-energizing our Wendy's brand, and we believe our fourth quarter same-store sales were among the strongest in the industry," Smith said. "At Arby's, we are implementing a turnaround plan to improve customer traffic and sales. Both of our brands focused on value menus in January 2010, and same-store sales improved as compared to the fourth quarter of 2009. Also, we have completed $120 million of our $200 million stock repurchase program, and we are confident in the long-term growth prospects of our company."
Going forward, "2010 will be a year of investing in our future growth. At Wendy's, we anticipate continued progress as we build on our ‘Real' brand positioning and focus on remodeling our restaurants. We are also investing in our breakfast initiative at Wendy's and expanding it to additional markets," he said.
Arby's results, 2010 outlook
With the still-struggling Arby's, Smith has developed a turnaround plan for the brand during his time as interim president.
For Arby's, North America systemwide same-store sales were down 11 percent for the quarter; company-operated comps were down 12.6 percent and franchise comps were down 10.2 percent. For the year, systemwide comps in North America were down 8.8 percent; company-operated comps were down 8.2 percent and franchise comps were down 9 percent.
"Arby's fourth quarter same-store sales were lower than expected," Smith said. "Although consumers responded positively to the quality and variety in our $5.01 combo offerings, the promotion did not drive incremental traffic. In January, we expanded our $1 value menu, which includes a Jr. Roast Beef, Curly Fries and Jr. Chicken Sandwich, among other items. We were encouraged by same-store sales improvement in our media-supported markets and plan a systemwide expansion in April with national television advertising."
Successful initiatives for 2009 include the introduction of the premium Roastburger sandwich line and a new value strategy. For 2010, the company has developed a turnaround plan to re-energize the brand and rebuild customer traffic and same-store sales. Initiatives include the national expansion of Arby's new dollar value menu in April, which will be supported by a significant increase in its national TV advertising, as well as a rebranding effort in order to reconnect with customers.
The company also plans to revitalize its product innovation and invest in a significant remodeling program, a program Smith outlined at the Cowan & Co. Consumer Conference in January.
Cowan & Co. Consumer Conference
Smith said that while Arby's succeeds with its quality positioning, consumers have rated it among the lowest on value. The new value menu should improve that, with customers tending to use the items as add-ons rather than a full meal. The value menu is leading to some check erosion but is increasing to improved traffic, which is making up for the lowever average check and improving same-store sales. The value menu is in 2,500 of the chain's 3,700 stores.
Smith said an important component of Arby's turnaround is improving its media efficiency and advertising effectiveness. For 2010, the company will increase its national advertising, with its franchisees having approved a national media rate increase from 1.2 percent to 2.5 percent, effective April 1.
Arby's is continuing its premium product development, including new items for its Market Fresh line as well as chicken, but could not be specific.
Internationally, Arby's is targeting additional development agreements for a total of 400 new restaurants, including expansion in four new counties. Long term, the company foresees the potential for a total of 8,000 restaurants outside of North America.
WAG financial results
Revenues for the quarter were up 0.5 percent at $900.9 million for 13 weeks compared to $896.5 in 12 weeks in the same period last year. For the year, revenues were up 100 percent at $3.6 billion, compared to $1.8 billion last year.
The company's net loss narrowed 96 percent at $13.6 million compared to a loss of $393.2 million in the same period last year. For the year, the company posted a profit of $5.1 million compared to a net loss of $479.7 million last year.
Related Media
Subscribe
Get the latest news and resources from QSR Web.
