The Wendy’s Co. estimated that North American same-store sales would rebound to a 3-percent increase in the second quarter, and brand officials shared a full slate of menu, marketing and remodeling moves for the back half of 2012 aimed at accelerating sales and earnings growth.
While hosting securities analysts to a second Investor Day conference in its Dublin, Ohio, headquarters, Wendy’s officials said the brand was back on track to hitting targets in 2012 of 2-percent to 3-percent same-store sales growth and earnings before interest, taxes, depreciation and amortization of $320 million to $335 million.
The expected 3-percent gain in second-quarter same-store sales is a marked acceleration from the 0.8-percent increase from the first quarter, when an unfavorable sales mix resulting from the $2.99 W cheeseburger and higher-than-expected commodity inflation pressured sales and margins.
Executives from the chain of more than 6,500 restaurants in the United States and 27 foreign markets offered the following look ahead to what is in store for the second half of 2012.
Menu pipeline remains robust
Chief marketing officer Craig Bahner said Wendy’s would keep up its prolific output of new menu items but would aim for more consistent and reliable results.
“We’ve had some wins in our product pipeline in recent years and some not-so-wins,” Bahner said. “We need to be much more consistent with the product pipeline and how we bring innovation to market.”
He said future products for Wendy’s would have to be “compelling, distinctive and ownable.” The brand’s culinary team came forward with several menu items in test or soon to be tested, and much of the innovation centered on new applications of bread and buns.
Wendy’s has begun testing GrilledFlatbread Sandwiches, including a banh mi version and a Hawaiian teriyaki version. In addition, the chain said it would make a Pub Club sandwich on a pretzel roll.
The Black Label burger line, also in test, includes a cheddar-jalapeno bun for a Spicy Santa Fe sandwich. Other premium ingredients for the Black Label burgers include Portobello mushrooms, Muenster cheese, guacamole, habanero-Jack cheese and cilantro-lime dressing.
To further leverage the fresh fruit that has made its seasonal salads popular, Wendy’s will test roasted peaches in a new salad that will also include red onion and blue cheese. Salads may get a more portable look at Wendy’s as well, either in the form of a Curry Chicken Salad Wrap or in to-go packaging that's more convenient for the drive-thru.
The chain will also continue innovating around its line of fresh lemonades and its Redhead Roaster coffee program, added Bahner. “We’re not capturing our fair share of beverages, and we know that beverages drive visits outside of the main mealtime occasions,” he said. “We’re lagging in incidence on teas, coffees, and specialty and frozen coffees, but we have a strength on lemonade.”
Value menu to be rebranded
Bahner also noted that Wendy’s would expand digital and social-media marketing, as well as its outreach to Hispanic consumers. But changes to the chain’s value focus, specifically the My 99-cent Value Menu, would be among the most important Wendy’s will make in the near term.
The chain plans to alter its 99-cent menu and rebrand it later on after current test marketing has completed, Bahner said.
“Price-value is a critical, important area for Wendy’s because the value customer is so important to our business, and we’ve lost a lot of those transactions in this space,” he said. “As commodity pressure has come into the marketplace it has pushed us off 99 cents, so we don’t have that compelling, consistent 99-cent offering. As a result of that, the customer is coming in and not getting a predictable, reliable experience. Third, we find it difficult to find a national message that’s credible and compelling around our value.”
In its test, Wendy’s removed a few complicated, low-margin items from the 99-cent value menu but retained a core of six items, Bahner said. A second tier of value items will be priced between $1 and $2. Bahner stressed that a full meal could be made from the 99-cent items, inferring that the six items include at least one protein, side and drink.
In the test’s first phase, Wendy’s grew sales and margins, with minimal impact on transactions, Bahner said. The brand will fine-tune that new menu in the second phase and test the marketing and advertising needed to rebrand it.
“We’re serious about attacking this opportunity and getting it right for our customers,” Bahner said. “It will enable us to engage the consumer with compelling value messaging.”
Remodels to ramp up
Wendy’s “image activation” program for remodeling stores to new prototype designs developed in 2011 would accelerate in 2012 and 2013, officials said. So far, the 10 remodeled restaurants in its system are showing average sales lifts of more than 25 percent.
“When you elevate your restaurant facilities, it helps make everything else in your restaurant work harder for you,” said Abigail Pringle, senior vice president of strategic initiatives and planning. “This is about creating a lasting impression with the customer that will build their return visits over and over again.”
At eight domestic remodeled Wendy’s restaurants that have been open between four and 11 months, sales have increased across all lines of the business, the company disclosed. Dine-in sales, which tend to carry a higher check average, are up 43 percent, while carryout sales have risen 14 percent and pick-up window sales are up 44 percent.
The majority of the remodels and new builds scheduled for 2012 will carry the “urban” design from Phoenix and the “ultra modern” design from Columbus, Ohio, the company said.
Wendy’s has managed to cut about 35 percent of the $1.2 million cost of the “ultramodern” prototype design as it readies it for adoption across the system, Pringle said. The package should cost between $650,000 to $700,000.
Chief financial officer Steve Hare commented that analysts have asked Wendy’s why they wouldn’t remodel at a lower cost seen elsewhere in the quick-service segment — around $250,000.
“Well we’ve done that in the past,” Hare said. “We’ve spent $200,000 on restaurants and done some upgrades … and the result you get from spending that amount of money is a defensive outcome. You end up stabilizing falling sales and giving the restaurant a better look, but you didn’t change the customers’ perceptions of you.”
The chain will present three different remodeling options to franchisees in order to reimage according to their unit volumes and trade areas. Tier 1 investment packages will include everything for the $650,000 to $700,000 price tag, and Wendy’s estimates a more than 25-percent lift in sales for those locations. Tier 2 remodels would cost $500,000, to produce an estimated 15-percent increase in sales, while Tier 3 remodels would run only about $300,000, for a 5-percent sales lift.
Tier 1 remodeling packages will become available to franchisees in the fourth quarter of 2012, Pringle said, while Tier 2 and Tier 3 packages should become available next year.
Wendy’s plans to remodel 50 company-owned units in 2012 and another 100 locations in 2013, in addition to 17 new builds for 2012 and 20 new builds next year.