Wendy's modeling new design, menu after fast casual concepts

July 25, 2013 | by Alicia Kelso

Wendy's most anticipated product launch in recent history — the Pretzel Bacon Cheeseburger — is starting to yield returns, and the company plans to launch similar products that fit its new marketing campaign, offering fast casual quality food at a QSR price, said CEO Emil Brolick.

"Part of (Wendy's) equity is a heritage of product innovation, and I believe people give us credit for having higher ingredient quality characteristics," Brolick said Tuesday during a Q2 earnings call. "You'd be hard-pressed to find (the Pretzel Bacon Cheeseburger) other than going to a (fast casual). We're not going to get caught up in trying to play the same game better. We're going to play a different game."

Brolick added that the company's pipeline provides more "exciting" opportunities for Wendy's to continue positioning itself as a "new QSR," and further differentiate from its value-focused peers.

"There are a lot of people that can afford to go to quick casual restaurants, but there's many more that cannot afford or certainly not afford to go on a consistent basis. So when you can give them Pretzel Bacon Cheeseburger-quality products at a QSR price, we think that's a heck of a proposition, and you're going to see more of it," he said.

Transforming the brand

Also on Tuesday, Wendy's announced its plans to sell about 425 company restaurants as a "next step in its brand transformation." With this sale, Wendy's anticipates the acceleration of it restaurant remodeling initiative, called Image Activation.

Wendy's plans to reduce its total system ownership from 22 percent to about 15 percent with this sale, expected to be completed by Q2 2014.

Thus far, franchisees have applied to reimage nearly 150 restaurants under the Image Activation program. Approximately, 100 of those restaurants are currently in various stages of upgrades. Part of that redesign reflects a more fast casual style of ordering, where customers order their food as they go down the line, instead of waiting behind one another.

Finally, Wendy's initially predicted its restaurant remodels to cost anywhere from $750,000 for its "Tier 1" design to about $375,000 for a "Tier 3" design. Brolick said the company is working to declassify the tiered systems and work toward one general expectation.

"We're going to continue to work the number down, and I think we can get into that $550,000. And quite honestly, our goal is to continue working to get it below that if we can. And the message we continue to send to the franchise system is our goal is to seek the optimum of minimum capital input, maximum sales and maximum EBITDA. And I don't think we've quite found that sweet spot but we're certainly moving strongly toward that direction," he said.

Wendy's execs estimate that the sales lift the remodeled restaurants are getting is in the high-teens to 20 percent. Into the next year, the company's No. 1 use of capital will be for Image Activation efforts.

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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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