REPORT Reverdy Johnson, [email protected], 415.364.3782
New Burgers, Refocus on Core Products Helping Wendy’s Sales
Companies: BKC, CMG, DIN, DRI, EAT, JACK, MCD, PNRA, WEN, YUM December 8, 2011
Research Question:
Will new products allow Wendy’s to increase sales and capture new customers?
Silo Summaries Summary of Findings 1) WENDY‘S FRANCHISE OW NERS The Wendy‘s Co.‘s (WEN) new Hot ‗N Juicy burger line and the ―W‖ Two sources said y-y sales are on the rise and that the burger are driving sales, according to franchise owners, food new burgers have been part of the recent success . suppliers and store managers. Natural-cut french fries are reaching their year anniversary and continue to be a success. Sources Efforts to return to Wendy‘s core menu products and higher quality welcome Wendy‘s refocus on its quality core items . Both ingredients, plus advertising that targets a younger demographic, sources also approve of store remodeling, but neither is have added to Wendy‘s revival. The apparent success confirms yet scheduled to take part in the project. Sources have that Wendy‘s had room for improvement, as stated by sources in low expectations for the breakfast line.
Blueshift‘s January 2011 report. 2) SUPPLY CHAIN The natural-cut french fries introduced a year ago remain popular Three sources said Wendy‘s sales are up as a result of a and continue to help sales. Restaurant sources‘ response to the refocus on core products and a strong product rollout . The two food suppliers said Wendy‘s food quality is high fries currently is more favorable than right after the January launch. and that its marketing message is resonating with Customers were split in their opinions of the new burgers and the customers. The fries continue to be successful and drive natural-cut fries. traffic to stores. Both said their product prices are expected to rise in 2012. The third source is involved Wendy‘s breakfast remains in the trial stage. It received a with store redesigns and said Wendy‘s remodeling lukewarm reception from franchise owners and industry specialists project is on track. interviewed by Blueshift. However, the few store sources who commented on the line were optimistic. The newest development is 3) WENDY‘S STORES Six of seven sources said sales are on par with or better the use of real eggs instead of an egg mix. than last year because the new burgers attract new and Wendy‘s store remodeling also is in the test phase. Sources repeat customers. The natural-cut fries continue to be familiar with the project are optimistic about its potential to attract new business. Stores appreciate corporate‘s improve the company‘s image. Revamped stores‘ traffic has refocus on core items. One remodeled store source said traffic has exceeded expectations, and another source exceeded expectations. said remodeled stores in her area have had heavy foot Franchise owners offered their support and enthusiasm for the traffi c. One source said a nearby Wendy‘s reported initiatives and direction under the new CEO. strong feedback on breakfast trials. Another source currently testing the new breakfast line said the trials are ongoing and that Wendy‘s now is using real eggs instead an egg mix. Natural-Cut New Burgers Breakfast Fries 4) WENDY‘S CUSTOMERS These eight sources were evenly split in liking Wendy‘s new burgers. Praise centered around the thicker, juicier Franchise Owners burgers, good flavors and fresh ingredients. Concerns
were that the burgers did not taste fresh and the sauce Supply Chain N/A was overpowering. Sources also were evenly split in preferring the natural-cut fries to Wendy‘s previous fries. Wendy‘s remains a top choice for these customers, who Wendy’s Stores often pick it over McDonald‘s and other competitors.
5) INDUSTRY SPECIALISTS Wendy’s Customers N/A These four sources said Wendy‘s will have more success given its refocus on core items and less reliance on the Industry Specialists N/A val ue menu. One repeat source was more optimistic than he has been in years now that Wendy‘s is free of Arby‘s and can return to what it does best.
1 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
The Wendy’s Co.
Background Wendy‘s believes a significant opportunity exists in offering higher-quality and fresh made-to-order products, and is in the midst of revamping its product offerings and stores to gain greater share within the quick-service restaurant (QSR) industry.
CURRENT RESEARCH Blueshift‘s goal was to determine the current and future success of Wendy‘s new products, specifically its hamburger lines, and if the company would gain new and repeat customers as a result. We employed our pattern mining approach to establish and interview sources in six independent silos: 1) Wendy‘s franchise owners (2) 2) Supply chain (3) 3) Wendy‘s stores (7) 4) Wendy‘s customers (8) 5) Industry specialists (4) 6) Secondary sources (8)
We interviewed 24 primary sources, including seven repeat sources, and included eight of the most relevant secondary sources focused on Wendy‘s new products, store redesigns, consolidation of headquarters back to Ohio, and an interview with the new CEO.
Silos 1) WENDY‘S FRANCHISE OWNERS These two sources said year-to-year sales are on the rise and that the new burgers have been part of the recent success, drawing in new customers and creating loyalty in current customers. The Hot ‗N Juicy was a strong seller this fall. The W also had a good introduction. Natural-cut french fries are reaching their year anniversary and continue to be a success. Sources welcome Wendy‘s refocus on its quality core items. Both sources also approve of store remodeling, but neither is yet scheduled to take part in the project. Sources have low expectations for the breakfast line. Franchise owners appreciate the company‘s direction and priorities under new CEO Emil Brolick .
President/owner of a Wendy‘s franchise with 40 restaurants in the Southeast; repeat source Sales for this franchise overall are up in the mid-single digits year to year. The Hot ‗N Juicy burger promotion led to a 2% to 3% sales increase, but the W is still too new to gauge. Natural-cut french fries are luring in new customers. The source approves of the restaurant remodel plan, now underway in a dozen stores, but intends to wait for his remodel until store designs have been finalized. The prototypes are contemporary and a shift away from the typical QSR motif. CEO Emil Brolick has been well-received and has worked to reestablish trust with owners. Still, the source is concerned that Sales are up mid-single digits corporate is too focused on price points. He also is less enthusiastic about the year over year. … Sales are up immediate payoff of a breakfast rollout. . ―We were doing well last year because we were a test market for the due to the Hot ‗N Juicy about new products. Sales are up mid-single digits year over year.‖ 2% to 3%. It is a little better . ―The Hot ‗N Juicy is our new mainline hamburger in single, double and than what we expected. triple patties, and the general consensus is that people like it better. Sales are up due to the Hot ‗N Juicy about 2% to 3%. It is a little better President/Owner, Wendy’s Franchise than what we expected. I never expected a huge jump. I never Southeast expected it to increase gross sales by 20%. It‘s not even a promotion that would cause a 10% increase. You can‘t change a core item too much, or you lose the customers you have. But it is the reason we are able to grow, even at 2% to 3% or 4%, rather than stay flat.‖ . ―We have not yet seen the impact of the W. There is not a significant difference in sales. … We will have to wait and see how customers react to the W versus the Hot ‗N Juicy. I don‘t know yet whether it will become a staple.
2 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
The Wendy’s Co.
It is somewhere in between the 99¢ and the $3.50 offering. The intent is to have it be part of the core. But if it is not working, we will get rid of The natural-cut fries are selling it.‖ . ―All of the sandwiches are underneath the Dave‘s Hot ‗N Juicy more than before. The umbrella, including the W, which is just a smaller patty. It‘s more about hardcore Wendy‘s customers price point. The back office has focused a lot on pricing in the last year, don‘t really like them. But it but in my view they are not equity-building products.‖ brings in more new traffic and . ―The natural-cut fries are selling more than before. The hardcore more of the people who try it Wendy‘s customers don‘t really like them. But it brings in more new traffic and more of the people who try it like it, rather than reject it. It like it, rather than reject it. It has appeal. You leave the skin on and use sea salt. It has got a has appeal. healthier connotation than regular fries. But most are more interested President/Owner, Wendy’s Franchise in how they taste.‖ Southeast . ―We are seeing some good trends. They are upgrading the look of the stores. Wendy‘s currently has an older look, so something new is good. They are testing the new look at 10 to 12 stores. I don‘t have any yet. The new models are much more contemporary, more current and more relevant. They are using some different colors and transitioning out of the plastic, french fry world and into a more comfortable environment and feeling of casual dining. I have no idea when they will be ready. They are building them and tweaking them now. As for sales volumes, I would expect them to do well during the first six weeks, but that‘s not necessarily an indicator. Still, it is the right thing to do.‖ . ―I wish there were more cost-savings measures on the table. They are doing a lot with electricity costs. We all need to move to LED lighting in the parking lots.‖ . ―I don‘t know what specific new food items we are planning, but in general we expect to see new things with salads and side combinations, sandwich toppings.‖ . ―Breakfast is understandable for macroeconomic reasons, but until I see an overall boost to our economic needs, I‘m not sure. It‘s not something that I think is immediately viable, and it will not work for everyone. It may work if your consumers like it, it fits into your service system operationally and it actually improves your financial model. But if you are making $3,000 a week on breakfast for a given week and your sales don‘t go up, it‘s a waste of time.‖ . ―One concern I have about corporate is finding a way to get past the focus on price. We spent an inordinate amount of time in recent meetings on price points and advertising price points. … It‘s OK to focus on price point advertising 20% of the time, but right now we are doing price point advertising 50% of the time.‖ . ―I have great respect for [CEO] Emil Brolick and what he is doing. Everyone is optimistic about Emil. He carries a level of transparency whereas, before, there was concern that we were not hearing the whole story. We do need to work on our marketing. It needs more direction. We really have not had a qualified marketing officer in place for six months. But I expect a new hire after the first of the year.‖ . ―Overall, we need to see more jobs so people can eat out more often. We have had some flexibility in raising our prices because they were already up at grocery stores. Consumers are accepting because they know that the price of protein is up and they understand the need to pass it on. Some prices were down this quarter, but they will not stay down. The high price of corn this summer, the drought in certain areas and low herds means there won‘t be any more good news from that end.‖
President and owner of a Wendy‘s franchise with more than 50 locations in the Business is better since last year. Southeast; repeat source Sales are up year to year and are expected to grow further. The refocus on core The first half we were under last menu items has allowed Wendy‘s to return to offering a fresh, high-quality year, and this second half we are hamburger at a great value. The new french fries have been a success all year, up. … Fries sales are up and the new burger line has potential for expansion. Remodeling and compared to our old fries. We modernizing stores has proven successful in small samples and soon will be implemented on a broader scale. Breakfast remains a year away. launched them about this time . ―Business is better since last year. The first half we were under last last year, and they are up year, and this second half we are up.‖ significantly compared to then. . ―I would say that our success has been due to the improvement of our products. We made the smaller burgers bigger. They are 2.25 ounces, President/Owner, Wendy’s Franchise Southeast
3 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
The Wendy’s Co.
and you can‘t find that anywhere else. It is a filling meal for cost-conscious customers.‖ . ―It really hard to offer a burger for 99¢ and prices of meat are continuing to increase, so it is going to get even harder to offer a quality burger at a low price. We shifted to offering a larger patty to make the price worth it. It is about value, not price.‖ . ―Fries sales are up compared to our old fries. We launched them about this time last year, and they are up significantly compared to then.‖ . ―We enhanced our salads, and customers love them.‖ I am pleased with our return to . ―I am pleased with our return to a focus on core items; it has allowed a focus on core items; it has us to tell the story of our quality and freshness all over again. You really allowed us to tell the story of can‘t find a better burger.‖ our quality and freshness all . ―The new burger platform is very exciting. We can expand on it very over again. You really can‘t find easily.‖ . ―Breakfast is still probably a year away for our restaurants. The menu is a better burger. really high quality and not your typical breakfast menu. It will have President/Owner, Wendy’s Franchise biscuits, but that won‘t be the focus. We will offer Paninis and other Southeast choices. They are still working on the economics of it. They are confident that it will be successful when we roll it out.‖ . ―I pleased with our focus on the quality of the food, and customers like that about us.‖ . ―You will begin to see us start to invest in remodeling of our existing locations. McDonald‘s [Corp./MCD] is leading the way in store renovations, and we are quick to follow to capture and keep the younger market. They want something more modern a cool place to eat. We‘ve done a few locations over, and they have seen a huge increase in sales.‖ . ―Marketing is a lot better. It couldn‘t have gotten worse than it was. Emil Brolick came back to us and has given us back a pep in our steps. We are looking forward to what he can do for our company.‖
2) SUPPLY CHAIN These three sources said Wendy‘s sales are up as a result of a refocus on core products and a strong product rollout. The two food suppliers said Wendy‘s food quality is high and that its marketing message is resonating with customers. The fries continue to be successful and drive traffic to stores. Both said their product prices are expected to rise in 2012. The third source is involved with store redesigns and said Wendy‘s remodeling project is on track.
Sales/account associate for a U.S. chicken producer, supplier and distributor; repeat source Wendy‘s is heading in the right direction with its renewed focus on core products, the use of higher-quality protein at all price points, and TV advertisements featuring the real Wendy. New products have increased Wendy‘s traffic and sales in the last several months. Consumer prices are poised to rise for chicken products because animal stock is down 6% We are feeling very strong that to 7% year to year, which will lead to a 3% drop in protein availability. The squeeze is due to high corn pricing. QSRs could benefit if gas prices remain Wendy‘s is heading in the right below $4 a gallon. direction. We think they are . ―We are feeling very strong that Wendy‘s is heading in the right more focused now than in direction. We think they are more focused now than in recent years. recent years. … We see them Using Wendy [Thomas] in the advertising is a very good idea.‖ looking at their core product . ―They are going back to their roots and focusing on quality, whole muscle cuts and more formed products [higher-quality protein] on the and trying to make a path for value offerings. We think the mix is very good.‖ high-end purchases. That . ―Their sales seem a little better and their traffic seems a little better, approach is almost like an and new product offerings are part of it.‖ attempt to create a signature . ―We see them looking at their core product and trying to make a path brand and a core brand that is for high-end purchases. That approach is almost like an attempt to create a signature brand and a core brand that is not driven by cost.‖ not driven by cost. . ―The W burger could be a staple on their menu, and that‘s obviously Sales/Account Associate what they intend. But it will be a while before we know.‖ U.S. Chicken Poduce and Supplier
4 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
The Wendy’s Co.
. ―There is a lot of action on the product development side for new items or to return older items that did well. The value item also is still a play.‖ . ―People are just trying to exist after going through the worst three to six months ever. The restaurant guys seem to be coming back, and an important part of that is the gas price. It‘s around $3 in our area. If gas stays under $4, it will be a boom for the QSR industry.‖ . ―Everyone is following corn, and all feel [pricing] will rationalize itself in 2012. On the chicken side, product will cost more and that is driven by the cost of corn [feed], which means the supply [of chicken] is down, especially for breast meat.‖ . ―Due to the cost of corn, we are seeing a 6% to 7% drop in the supply of chicken [year to year]. If we are putting out 6% to 7% less chicken in the field, that translates to about 2% to 3% less protein [in 2012].‖ . ―We‘ve got to get the price rationalized on the boneless breast side, but that will be difficult. We have already this past year seen three key chicken production companies go out of business and more are on the brink. We are not in jeopardy because we already went through this same problem in 2008. We continue to do well and we are selling more than last year, but some is due to the demise of others. Our orders are up and we have more market share than we did a year ago, but the demand went up as well so it is not necessarily all share.‖
VP of marketing for a global supplier of frozen potato products; repeat source Industry perception and anecdotes suggest Wendy‘s has gained momentum with new products and advertisements. Wendy‘s traffic is up. The company appears to be returning to its roots and core menu items while appealing to a new, younger demographic. The new french fry products have driven traffic and increased sale of fries per visit. However, this They seem to be going back to source expects finished potato product prices to increase about 3% in 2012, pressured by tight inventories, a low crop yield in 2010 and a mediocre crop the whole fresh idea, which is yield this year. popular now, and to their core . ―Wendy‘s has gotten some momentum and has been successful and food products. It seems to be consistent with a number of new rollouts. And consumers are the right decision and at the responding well to the momentum.‖ same time their ads reflect a . ―The new [burger] products have been well-received. Going by word of mouth, people are trying the new items and they speak highly of them.‖ more youthful energy. . ―I think they are taking the brand in a different direction that plays VP of Marketing back on the strengths of their earlier success. They are focused more Global Frozen Potato Products Supplier on fresh flavors. I remember when they were the first to introduce the salad in an effort to differentiate their brand. They seem to be going back to the whole fresh idea, which is popular now, and to their core food products. It seems to be the right decision and at the same time their ads reflect a more youthful energy.‖ . ―Data shows [the new fries] have helped to increase traffic. It has increased the number of visits, and the numbers of french fries sold per visit was higher. So, yes, the new campaign has helped to get people into the store and ordering fries.‖ . ―I believe they are planning a big focus on the sandwich and experimenting with new sandwich flavors. This would appeal to a Data shows [the new fries] younger demographic, and it should keep up the momentum.‖ have helped to increase traffic. . ―There seems to be more of an emphasis on the culinary piece versus price, which is good for the industry and should create more traffic.‖ It has increased the number of . ―The potato market was very short last year globally. Europe had a visits, and the numbers of bigger yield with a larger crop this year, and North American crops were french fries sold per visit was more normal although poor in certain regions. But there was such a big higher. hole in the finished goods that most of the current crop improvement went to fill that hole. Inventory is tight. Prices are up about 5¢ to 10¢ a VP of Marketing pound over the past 18 months, but that follows what was a fairly long Global Frozen Potato Products Supplier period where we saw no inflation.‖ . ―The whole potato industry is treading water right now. Consumer prices are edging up but not as quickly as in other food sectors. We are seeing about a 3% increase in the price of value-added products for the consumer. There is no appreciable drop in consumption. But there are too many things going on with the potato to truly know what to expect.‖
5 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
The Wendy’s Co.
. ―The [potato] industry is always challenged. Business is steady for us year over year, which is to say very flat. Potato and frozen french fry consumption is flat, but the biggest issue is restaurant traffic. We need to see employment go up; until it does, we will not see a different trend. We had a rough patch in 2008 and 2009, and we believe things will return to a growth level next year. But everyone right now is dealing with the same issue.‖
National account manager for a global technology company that offers digital signage for QSRs The source‘s digital technology company is working on the Wendy‘s store redesign prototypes, with four designs under consideration in an effort to narrow appropriate models. Digital LED signage and POS systems are part of the remake. He said Wendy‘s sales in the last six months have risen 3% to 5% because of new products, and believes Wendy‘s is beating Burger King Holdings Inc. (BKC) and McDonald‘s in traffic and sales. . ―We believe the Hot ‗N Juicy is driving traffic. The product is much improved. The first thing you notice is that the meat is thicker and juicier. The toppings are great, and they have added a toasted bun. It seems to be carrying momentum for them into the sales of other products.‖ . ―The general numbers for the introduction of their new products show an increase in sales. The numbers are preliminary. But their sales They are currently testing a few numbers due to the new products are trending up about 3% to 5% over the last six months. That is my perception of their sales numbers.‖ different models in different . ―I would say they have seen a 5% uptick in sales in the last quarter; markets for the store that would be the biggest growth of any of the QSRs and it was due to renovations. They have four the Hot ‗N Juicy.‖ different prototypes testing in . ―We believe they have developed a good strategy for targeting different phase one. In phase two, they price points. The W is set up to be a staple on the regular menu and integrated into the core menu of items. It is in the midprice point range, will narrow which one of the versus the $7 burger or the $1 burger.‖ models is best suited. I do not . ―They are currently testing a few different models in different markets know the timing. for the store renovations. They have four different prototypes testing in phase one. In phase two, they will narrow which one of the models is National Account Manager best suited. I do not know the timing.‖ Global Technology Company . ―Sales in the digital signage market are poised to go up. We have new orders from Wendy‘s and Smashburger [Master LLC]. Our sales are up about 3% with certain customers, but our sales in general are about the same as last year. Still, we are seeing a huge climb in interest and growth with regard to point-of-sale technology. As a result, we expect an uptick in the fourth quarter.‖ . ―We are seeing LCD panels and computers that drive images driving our market. QSRs want LED or LCD, whatever is the latest. The best products available now for QSR are LCD, but we will see a move toward LED.‖ . ―We work with all of the QSRs. Compared to Burger King and McDonald‘s, I would say Wendy‘s is doing better. [Doctor‘s Associates Inc.‘s] Subway is the only one beating them.‖
3) WENDY‘S STORES Six of seven sources said sales are on par with or better than last year because the new burgers attract new and repeat customers. Both the Hot ‗N Juicy and W are expected to become fixtures on the regular menu. The natural-cut fries continue to be attract new business. Wendy‘s Spicy Chicken Sandwich also has garnered a lot of attention and praise from customers. Stores appreciate corporate‘s refocus on core items. One remodeled store source said traffic has exceeded expectations, and another source said remodeled stores in her area have had heavy foot traffic. One source said a nearby Wendy‘s reported strong feedback on breakfast trials. Another source currently testing the new breakfast line said the trials are ongoing and that Wendy‘s now is using real eggs instead an egg mix. The Panini and bacon have become permanent breakfast items.
Store manager in the Los Angeles area Overall, business has been strong and on par with last year. The Spicy Chicken Sandwich and the salads are the store‘s top sellers. The W is selling well enough to be moved to the permanent menu in the coming weeks. The source also reported strong demand for the natural-cut fries.
6 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
The Wendy’s Co.
. ―We have been doing very well for the last six months. I would say we are about even though with a year ago despite the downturn in the economy, and I think that is because we have great prices and good value for the money.‖ . ―I think the prices are fair. People don‘t complain about them and you can see we get a steady business.‖ . ―The new burgers are both doing well. The W is probably selling more We have been doing very well than the other though, and we are already moving the numbering for the last six months. I would system around so that we can put the W on the permanent menu.‖ say we are about even though . ―People like the W because it‘s bigger and more of a meal, but they with a year ago despite the also like the freshness.‖ downturn in the economy. . ―The natural fries are very popular. People like the natural approach and the salt.‖ Manager, Wendy’s . ―Nothing new is coming that we know about right now although like I Los Angeles, CA said the W is going to be part of our regular burger lineup.‖
Reporter Observations: This store was packed at 1:30 p.m. on a Monday, but still appeared to be quite clean. We noted frequent orders for the Spicy Chicken Sandwich.
Assistant manager in the Los Angeles area Sales during the last six months are up year to year, driven in part by the fries and combo meals. Customers appreciate the food‘s freshness, the reasonable prices, and the ability to get core items and specialty items. The Hot ‗N Juicy burgers are outselling the W burger, but both may sell well enough to become regular menu items. . ―Our biggest seller is the Hot ‗N Juicy combo ¼-pounder. The W is not selling as well as the Hot ‗N Juicy.‖ . ―I can see the W being a regular item though. People like the double patties.‖ . ―The fries are selling well. We seem to be selling a lot more of them.‖ . ―Prices at Wendy‘s are pretty reasonable. You get more food here. Our salads, for example, are very big. They are dinner-sized salads, not little lunch salads. And the burger/fry combos are big.‖ . ―What keeps customers coming in is the fresh ingredients. We have our own fresh style that other fast-food places do not offer. We seem to do well with basic and classic menu items like burgers, fries and the salads. I don‘t think adding Mexican food items would work or other international foods.‖ . ―Our baked potatoes are also very popular. People often get those with one of our salads as a whole meal, and it really is a lot of food.‖
Reporter Observations: A steady stream of customers, many of them teenagers, entered this store at 2:30 p.m. on a Tuesday. Signage for the W burger was in the windows and at the drive-thru. Most people ordered the Hot ‗N Juicy or the Spicy Chicken Sandwich.
Store manager in Florida New products are leading to increased sales and traffic year to year. This source is optimistic that Wendy‘s will have continued success with its menu items. The burgers have helped Wendy‘s to focus on core menu items, and the fries continue to sell. He expects to offer breakfast in 2012 because trials at other stores are receiving positive feedback. . ―Business has been going up. This fall is a lot better than last.‖ . ―The burgers bring more focus to who Wendy‘s is. We were built on the burger.‖ . ―There is still interest in the Hot ‗N Juicy. A lot of customers like it.‖ . ―The W is not doing as well as the Hot ‗N Juicy, but it‘s staying on the menu.‖ . ―There is still good response to the fries.‖ We hope to have breakfast the . ―We hope to have breakfast the beginning of the new year. There are a beginning of the new year. few stores trying it now, and it is going well.‖ There are a few stores trying it . ―When we first raised the prices, customers were a little questioning, now, and it is going well. but the quality and freshness are like no other fast food.‖ . ―Marketing is doing a great job.‖ Store Manager, Wendy’s Florida Reporter Observations: We noted many signs promoting new menu items,
7 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
The Wendy’s Co.
including a 99¢ cheeseburger and the Hot ‗N Juicy selections, during our visit at 6 p.m. on a Tuesday. The restaurant had 15 people, primarily families and men, dining in and 20 cars go through the drive-thru. The restaurant was clean, and the manager was in the dining area.
Store manager in Florida The new burgers are selling well, as are the natural-cut fries. Coupons drove traffic and sales a month ago, but sales are down year to year because of competition from with a new Panera Bread Co. (PNRA) store. . ―The new burgers are doing well. They are both popular. The Hot ‗N Juicy is more popular because it is on the combo menu. People don‘t even know the name of it sometimes, but they know they like it. The W is selling well too, but the Hot ‗N Juicy is our predominant burger.‖ . ―Marketing has been great. I am seeing more commercials, the signage is working, and the coupon in the newspaper brought people in.‖ . ―We had a big coupon release about a month ago, and we were slammed. I think it helped people get in to try our new burgers, and I think they are coming back in for them without the coupon.‖ . ―Sales are down compared to last year at this time because of the Panera Bread across the street.‖ . ―Our restaurant has been here for about seven years, and we have a loyal following of customers. I am not worried.‖ . ―We are not affected by the economy; this is an affluent area, so 10¢ goes unnoticed here.‖ . ―The fries are still popular.‖ . ―There is no update on breakfast.‖
Reporter Observations: The restaurant had 25 people dining in and 15 in the drive-through during a 30-minute visit starting at 2 p.m. on a Saturday. The restaurant had a nice exterior look, and the interior was clean and newer feeling. Signage promoting the W for $2.99 was on the front window while Hot ‗N Juicy signs were above the condiment station.
Store manager in the Chicago area Wendy‘s new menu items are increasing sales and gaining customers‘ praise. The Hot ‗N Juicy combo meal is one of the top sellers and outselling the W burger 2:1. This location just reopened two weeks ago after a total remodel, and initial sales have been higher than expected. Eighty percent of orders are for combo meals. . ―The new menu items are definitely helping the company and sales. Our sales have increased this year. Customers really like the changes in our food.‖ . ―The Hot ‗N Juicy burger combo meal is very popular. The customers really love the new burger. They also like all the toppings and the toasted bun. I get no complaints. We sell an awful lot of them.‖ Since our reopening, we have . ―Sales of the W burger are steady. We just got it in. Customers like that been doing great. We are it has a double patty. They like more meat.‖ beating our expectations so far. . ―The Hot ‗N Juicy is outselling the W by about 2 to 1. The W is pretty Everybody is coming in to see new, so maybe everybody does not know about it yet.‖ the new store. They really like it . ―The most popular menu items are chili, the Hot ‗N Juicy meal and the Spicy Chicken Sandwich meal. In the warmer months, chili sales slow and are excited we are open and we sell more salads.‖ again. . ―Mostly, the customers like the new fries better than the old ones. They Store Manager, Wendy’s like the taste better.‖ Chicago, IL . ―Our new Asiago Ranch Chicken Sandwich has been out for about three months. It is selling OK.‖ . ―This location was closed for four months for a total remodeling. We just reopened two weeks ago.‖ . ―Since our reopening, we have been doing great. We are beating our expectations so far. Everybody is coming in to see the new store. They really like it and are excited we are open again.‖ . ―Sales are where they should be.‖ . ―Most of our customers order the meals. I would say 80% of our orders are meals and the other 20% is a single item like a drink or salad.‖
Reporter Observations: During our 45-minute visit starting at 2:45 p.m. on a Wednesday, 15 to 20 cars went through the drive-thru and 10 to 12 people, ages 30 to 70, were eating in the restaurant. Seventy percent of dine-in customers were
8 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
The Wendy’s Co.
male. Promotional signs were located inside the restaurant, on the drive-thru menu board and placed into the lawn near the drive-thru menu.
Store associate in Columbus, OH Wendy‘s new burgers are bringing in new and repeat customers. Both the Hot ‗N Juicy and W burgers are expected to become menu fixtures but an unprofitable burger, the Double Stack, was taken off the menu. Remodeled stores in the area have succeeded in gaining traffic. One remodeled store had more menu options and a new touch-screen Coca-Cola dispenser. Breakfast trials are ongoing; real eggs have taken the place of egg mixes. The few customers aware of the breakfast items have said the quality is better than McDonald‘s. The lack of advertising is impeding breakfast sales. . ―Everyone likes the new burgers. They are thicker patties of meat and smaller on the bun. We‘ve had some people who like the old way with the thinner longer patties, but for the most part people really like the new ones.‖ . ―At first, people loved the Hot ‗N Juicy. They still do. And now they are all trying the W. So far, everyone likes it. We‘re selling more and more of them.‖ We are one of the test sites for . ―We no longer sell the Double Stack. We weren‘t making any money off the new breakfast. I think it, and it was replaced by the thicker burgers. We only offer the Junior about 10 stores in our area burgers.‖ have it. We continue to try new . ―I used to work in one of the remodeled test stores. It was really new and different combo meals. with a lot of different things, including more food options like smoothies and the new touch-screen Coke machine. It‘s really cool. I Some work and some don‘t. heard another store might get one even though they aren‘t The new development that is remodeling.‖ exciting is that we are now . ―The only problem with the remodeled stores is that we got so busy, using real shell eggs for all of there was often a line for the bathroom and it got dirtier faster.‖ our sandwiches, not the egg . ―We are one of the test sites for the new breakfast. I think about 10 stores in our area have it. We continue to try new and different combo mix we used to use. The Panini meals. Some work and some don‘t. The new development that is and Applewood smoked bacon exciting is that we are now using real shell eggs for all of our from previous breakfast sandwiches, not the egg mix we used to use. The Panini and rollouts are now regular Applewood smoked bacon from previous breakfast rollouts are now breakfast items. regular breakfast items.‖ . ―We make a little money off breakfast, but it would be better if all the Store Associate, Wendy’s stores had it so we can advertise it. Without the advertising, many Columbus, OH people don‘t know we have a breakfast. But those that come in for it say they like it better than McDonald‘s.‖
Store manager in the Chicago area Customers are adjusting to the new menu, and most like the changes. The W burger is outselling the Hot ‗N Juicy because of its lower price and signature sauce. The Spicy Chicken Sandwich combo meal is the store‘s best seller. . ―We do well. We are usually pretty busy. We are on target for our sales goals.‖ . ―A lot of people are trying to get used to new items and combo numbers, but I have not had any complaints about it.‖ . ―I think the new menu can bring us some new customers. It is hard to say. We get a lot of the same customers but get some tourists too. People seem to like the changes.‖ . ―Customers really like the W burger. They like the signature sauce. It has a sweet taste but not too sweet.‖ . ―The W burger is selling better than the Hot ‗N Juicy because of the price. It is cheaper.‖ . ―They also like the Hot ‗N Juicy. I hear people say they like the bun. They like the toasting and buttering.‖ . ―The Spicy Chicken combo meal is our best seller.‖
Reporter Observations: During a 40-minute visit starting at 2:30 p.m. on a Friday, between 15 to 20 cars were served in the drive-thru. Ten customers, mostly men, were dining inside the store. Four staff members were working. Advertising for promotions and the new burgers was heavy.
9 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
The Wendy’s Co.
4) WENDY‘S CUSTOMERS These eight sources were evenly split in liking Wendy‘s new burgers. Half said the new burgers are better than the previous ones and are worth returning for; the other half said the burgers were mediocre to poor and not an enticement to return to Wendy‘s. Praise centered around the thicker, juicier burgers, good flavors and fresh ingredients. Concerns were that the burgers did not taste fresh and the sauce was overpowering. Sources also were evenly split in preferring the natural-cut fries to Wendy‘s previous fries. Wendy‘s remains a top choice for these customers, who often pick it over McDonald‘s and other competitors. Two sources said the Spicy Chicken Sandwich is their favorite choice. One said he remains very enthusiastic about the new breakfast and looks forward to a full rollout.
Los Angeles man in his early 20s The freshness and taste of Wendy‘s new burgers have captured this source‘s attention. He also enjoys Wendy‘s other offerings, including the Spicy Chicken Sandwich, chili and salads. He said the new fries are much better and less greasy than Wendy‘s previous fries. He no longer eats at McDonald‘s because of its food‘s poor quality and taste. . ―I prefer the Hot ‗N Juicy burger over the W. I usually buy the ¼- pounder if I do though. It has more flavor to me and the burger is bigger than the two patties on the W. But my favorite is the Spicy Wendy‘s has pretty good prices Chicken Sandwich. It has a great flavor.‖ considering the food is very . ―I eat at this Wendy‘s about twice a week because I work nearby. That is the same as about a year ago. I started coming here when I got my fresh. The lettuce and tomato job.‖ on the burgers are never soggy. . ―It still is fast food, even if it‘s fresher than McDonald‘s or [Yum Brands The lettuce actually crunches Inc.‘s/YUM] Taco Bell.‖ when you bite into it. . ―The new fries are great. I think they taste less greasy.‖ . ―I have stopped going to McDonald‘s altogether. But that is not Customer, Wendy’s because I think Wendy‘s is better. It‘s just because I think McDonald‘s Los Angeles, CA food is horrible.‖ . ―Wendy‘s has pretty good prices considering the food is very fresh. The lettuce and tomato on the burgers are never soggy. The lettuce actually crunches when you bite into it.‖ . ―I order the chili all the time. It‘s awesome.‖ . ―I like Taco Bell. The prices there for the food are unbeatable. They have the best value menu all around.‖
20-year-old Los Angeles-area woman Wendy‘s is this source‘s first choice for fast food because of the fries and milkshakes. The W and Hot ‗N Juicy burgers are good but not reason enough to return. She prefers the Spicy Chicken Sandwich. . ―If I have my choice between any fast food it would be Wendy‘s first, then Jack in the Box [Inc./JACK]. I like the Jack in the Box tacos.‖ . ―I‘m not that crazy about any of Wendy‘s burgers. I‘ve tried the W, and it‘s OK but nothing special and not that different from the other burgers in taste. You get two patties and it has thousand island sauce on it, but that‘s about it.‖ . ―I don‘t think the burgers here would keep me coming back. I come for other things anyway though, so the number of times I would visit a Wendy‘s is probably not going to change that much at all.‖ I love the natural fries. They are . ―I prefer the Spicy Chicken Sandwich. It has the best flavor.‖ the best fries, much better than . ―I am in this Wendy‘s about once a month, and I also go to one closer McDonald‘s. to my house.‖ . ―I love the natural fries. They are the best fries, much better than Customer, Wendy’s McDonald‘s.‖ Los Angeles, CA
Florida woman in her late 30s This very satisfied Hot ‗N Juicy customer will be returning for more. She prefers Wendy‘s hamburgers overall and said they are a great value for the quality and size. . ―I just had the Hot ‗N Juicy for the second time. It is a really good burger. I will come back for more.‖
10 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
The Wendy’s Co.
. ―It is a great value; the burgers are bigger and better. I like what they offer for my kids too; it seem like better quality than McDonald‘s.‖ . ―The kids like McDonald‘s better, but I prefer Wendy‘s burgers.‖ . ―The fries aren‘t my favorite. They need a bit more salt.‖
Florida man in his 40s The new burgers are not a driving force behind this source‘s visits; he prefers Wendy‘s more traditional burgers. He does believe, however, that the new I think the new items will bring burgers will appeal to more customers. Although he prefers the natural-cut fries, he said his friends are turned off by them and have stopped coming to Wendy‘s. more customers that want to . ―The new items don‘t bring me in more. I am traditional in what I like, try a good burger. so it‘s important to me that I can get the same thing and have it be Customer, Wendy’s consistent every time.‖ Florida . ―I get the same thing every time, the single combo, one to two times a week.‖ . ―I think the new items will bring more customers that want to try a good burger.‖ . ―The value is great; I am full and satisfied without spending a lot of money.‖ . ―I like the new fries better the old kind, but a lot of my friends don‘t really like them and won‘t come here because they can‘t get fries they like.‖ . ―I eat a Burger King too. I think the burgers are different but good.‖
Chicago man in his 30s This source likes the new menu and believes Wendy‘s will build sales through menu expansion and store remodeling. The new advertising strategy makes Wendy‘s more appealing. He prefers Wendy‘s burgers over McDonald‘s and has noticed improved taste and quality in the meat of the new burgers. He is not interested in W burger because of the special sauce on it, and he preferred Wendy‘s previous fries. . ―I like the new menu. The burgers taste better. I think what they are doing now is a good idea—how they are presenting the food and that it I‘ve noticed a change in the is more natural.‖ meat Wendy‘s is using with . ―I almost always get the Hot ‗N Juicy meal. Sometimes I get a chicken sandwich, but I generally like and stick with burgers.‖ their new menu. I like the . ―I‘ve noticed a change in the meat Wendy‘s is using with their new burgers even better now. They menu. I like the burgers even better now. They are using a better are using a better quality of quality of meat and the burgers themselves taste better too.‖ meat and the burgers . ―I like Wendy‘s better than McDonald‘s, especially the burgers.‖ themselves taste better too . . ―I have not tried the W burger yet, but I did see the sign today inside. I probably won‘t try one. I know it has some kind of special sauce on it. I Customer, Wendy’s usually don‘t like that kind of condiment on my burgers. I prefer just Chicago, IL ketchup and mustard.‖ . ―I actually prefer the old fries better. I like the taste better. I don‘t really like the skins on them. I like them more crispy and thin like McDonald‘s fries. I prefer their fries to Wendy‘s now.‖ . ―The new advertising makes Wendy‘s food more appealing to eat. Whoever came up with the new marketing strategy did a good job.‖ . ―This new location is really nice. I think Wendy‘s can build sales. It all depends on what more they do in the future to expand the menu.‖
Chicago man in his 40s This source was disappointed with the W burger and said Wendy‘s has not improved its lineup with the menu changes. The W did not taste fresh or flavorful, and the sauce is an acquired taste. He will continue to come back regularly for other items and expects to try the Hot ‗N Juicy. . ―I tried the W burger. I got the combo meal. I was not planning on it, but I saw the sign and it looked so good, I wanted to try it.‖ . ―The W burger was fine. I ended up scraping the special sauce off it. Next time, I would order it without the sauce. I am not a big fan of sauces.‖
11 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
The Wendy’s Co.
. ―I know the burgers got bigger, but I didn‘t find a noticeable change in the taste of the meat.‖ . ―My main issue with Wendy‘s is their burgers are dry. I even thought the W was kind of dry. It either has to be how long they are cooking it or the meat is not that fresh.‖ . ―I don‘t think they make the burgers fresh like they say they do. My bun felt like it was fresh from the package; that it has not been prepared at all. It didn‘t seem buttered. It just wasn‘t soft or was warmed up.‖ . ―I have not tried the Hot ‗N Juicy yet, but I will eventually.‖ . ―I doubt the menu changes with help Wendy‘s grow in sales.‖ . ―I go to Wendy‘s about three times a month.‖ . ―I have tried Five Guys [Enterprises LLC]. I hated it. I think it is terrible meat and a junky production. Their fries are OK. That might have been the best part of the food. And I thought they were overpriced.‖
Columbus man in his 50s The Hot ‗N Juicy was better than other Wendy‘s burgers but not worth getting again because it did not appear to be freshly cooked. The fries are an improvement over the older version, and the breakfast stands out as the most exciting development from Wendy‘s. He hopes the breakfast will be available at all Wendy‘s soon. . ―I thought the Hot ‗N Juicy double was better than your average Wendy‘s burger. The meat was more flavorful, and the dressing made it juicy. It was comparable to a McDonald‘s double cheeseburger.‖ . ―But I wouldn‘t get it again. The patties seemed warmed up rather than freshly cooked. I expected more for a store about five miles from the company‘s headquarters. We went at 6:30 p.m., and it was practically empty.‖ . ―I normally get the Baconator and I like that better than the Hot ‗N Juicy, partly because it is more plain and simple without all the sauces.‖ . ―The fries were good, better than the old ones. They have more flavor and look more appealing too.‖ . ―I also got their new caramel [Frosty] shake, which I thought was pretty good.‖ . ―Frankly, I was more excited about their breakfast I tried a few months ago than the new burgers. I‘d prefer to have their breakfast and hope they get it in all the stores around here soon.‖
Columbus woman in her 50s The W burger was a disappointment in taste and value, and this source also prefers the previous french fries. She is not likely to order burgers or fries from I thought it was worse than Wendy‘s again, but will continue to purchase salads and chicken sandwiches. other burgers I‘ve had at . ―The W had no flavor to the burger but got the taste from the sauce, Wendy‘s. I was disappointed in which tasted like the thousand island dressing you get on McDonald‘s the value I got for what I paid. burgers. It‘s really nothing more than two patties of a junior burger.‖ . ―I thought it was worse than other burgers I‘ve had at Wendy‘s. I was Customer, Wendy’s disappointed in the value I got for what I paid.‖ Columbus, OH . ―I didn‘t like the fries either. I prefer the older ones.‖ . ―I‘ll still come back for the salads and chicken sandwiches I normally get when I come here. But I won‘t order burgers again.‖ . ―I noticed more in-store advertising than before. There are more pictures of Dave, and they are pushing the new burgers front and center in the store.‖
5) INDUSTRY SPECIALISTS These four sources said Wendy‘s will have more success given its refocus on core items and less reliance on the value menu. One repeat source was more optimistic than he has been in years now that Wendy‘s is free of Arby‘s and can return to what it does best. He said the new products and smart marketing show a commitment to getting back to its core. He also believes the store remodels will help. Another source said Wendy‘s has a strong brand and motivated franchise owners, two important elements to success. A third source said Wendy‘s is smart to offer a three-patty option for the Hot ‗N Juicy burger because it should result in more purchases of the two-patty burger. However, he criticized Wendy‘s menu placements and said the menu lacks information on the differences between the new products. The fourth source was surprised the new products were succeeding because they did not appear to be special. Two sources were guarded about Wendy‘s breakfast.
12 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
The Wendy’s Co.
Business school professor with extensive experience covering Wendy‘s and the fast-food industry; repeat source The source was cautiously optimistic about Wendy‘s future for the first time in years. The new products like the Hot ‗N Juicy burgers, the marketing campaign and a return to Dave Thomas‘ core values could help Wendy‘s. All QSRs will benefit from customers trading down from casual dining and need to be prepared by offering better service and products, which includes updating facilities. He was unsure about the potential of Wendy‘s breakfast, which could present another set of challenges. . ―I was pessimistic about what they were talking about with Wendy‘s/Arby‘s. I doubted Wendy‘s would exist in a few years. Now I‘m cautiously optimistic. They might return Wendy‘s to what it was when I‘m cautiously optimistic. … Dave Thomas was alive. Now Wendy‘s can focus on Wendy‘s. They are They are…returning to core getting Wendy involved in the advertising and returning to core products and adding new ones. products and adding new ones. They are focused back on freshness, They are focused back on quality and consistency—principals Dave Thomas believed in. They freshness, quality and could be major players in the market. The new menu items are good; the Hot ‗N Juicy focus makes sense and might be the key to that.‖ consistency—principals Dave . ―It seems to be going well for Wendy‘s: same-store sales, some profits Thomas believed in. They could growing. … My outlook is a lot different than it has been.‖ be major players in the market. . ―The new marketing campaign is the right move. It‘s the first time in a The new menu items are good; long time it makes sense and can be effective. The last few years they were way off the mark. It‘s the right kind of marketing to be back to the the Hot ‗N Juicy focus makes core. They are right with the consistent message for where they‘re sense and might be the key to going for a strategy and product. I would give them high marks for the that. first time in years.‖ ―Wendy‘s mindset is they are quick service, not fast food. It‘s critical to Business School Professor, . Fast Food Industry Specialization their success. They got away from that, and now they are getting back to it. It‘s the mindset that drives their enterprise, including their franchisees. They have the new products; the advertising seems to be right but the future is to be seen.‖ . ―Competitors are using the freshness angle Wendy‘s has always had—fresh not frozen. But there‘s a cost associated with that. Given a squeeze on pricing, it might be a disadvantage. Wendy‘s has never used frozen [beef]. Is that an advantage? If people like that, then yes. Trying to appeal to all consumers is tough to do.‖ . ―Customers are likely to trade down to QSR from casual dining. That‘s maybe where Wendy‘s will benefit more than customers moving up. They will have to attract a higher-end customer, which means service and quality as well as first-rate operations. They‘ll have to invest in the facilities. The traditional QSR customer is not going to trade up.‖ . ―Will the breakfast be a success? I don‘t know. They‘ve tried it before, but it‘s such a tough market to enter into late. If they can support the operational side, the future looks good.‖
Food industry menu consultant helping with the design and placement of menus; repeat source Wendy‘s new burgers are not being given the menu fanfare they need in order to draw customer attention or to give them a competitive advantage. Customers become confused when the menu is too complicated and will default to their typical order. Still, Wendy‘s introduction of three patty options for the Hot ‗N Juicy is more likely to get customers to buy the two- patty version, thus increasing sales at a higher price point. . ―I looked at the Dave‘s Hot ‗N Juicy and the W burger, and it took me 10 minutes to figure out what the difference was: the sauce. When you look at Wendy‘s [online] menu, you can‘t tell the difference. … I had to pull the nutritional information: Are the W and the Hot ‗N Juicy the same burger? They aren‘t differentiating between their burgers well enough to make them their own brand. I don‘t see the difference between the Hot ‗N Juicy versus the old double burger.‖ . ―They aren‘t doing a good job building the feature of each burger. They need to do what they did with their salad: The copy stood out and sounded great, the ingredients were listed out. I do this for a living, and I couldn‘t tell without pulling the nutritional information. How‘s a customer supposed to know? This would also help them differentiate their burgers from competitors.‖
13 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
The Wendy’s Co.
. ―The value menu is placed in the wrong spot: You walk in and it‘s the first thing you see. Totally wrong. People should have to search for it. Having a single, double and Value menus should be there for the value-driven customer, but the goal should be to up-sell them. But now, there‘s not much difference. triple [patty] can be good. The descriptions are the same for premium and the value menu [from People tend to go to the middle Wendy‘s online menu]. There should be more copy; there‘s no value option. … One of them can be a built into the Hot ‗N Juicy.‖ decoy, putting items they don‘t . ―Having a single, double and triple [patty] can be good. People tend to go to the middle option. … One of them can be a decoy, putting items want to sell on the menu. they don‘t want to sell on the menu. Meaning, we don‘t want to sell the Meaning, we don‘t want to sell thee patty, but it pushes people to the two patty. If there are two items, the thee patty, but it pushes people go to the smaller one.‖ people to the two patty. If there . ―However, if the menu has so many options from which to choose, are two items, people go to the people will default to what they know, a single hamburger or whatever. In a current study, it was discovered that having seven options in one smaller one. category is too many. Five is the optimum. Too many choices is Food Industry Menu Consultant overwhelming.‖ . ―Years ago, Dairy Queen had 30 sundae flavors. Today, the menu board is spread out: candy, fruit, chocolate flavors; four to five options and customers can navigate and choose faster. They wind up being more satisfied because of it.‖
Richard Adams, president of the Franchise Equity Group, former McDonald‘s executive Wendy‘s recipe for success needs to be a return to a core menu focus now that the company has split from Arby‘s. Wendy‘s has a strong brand and motivated franchisees, which will help with new menu items and store remodels. An area of concern is the focus on premium burgers because of the cost, especially when compared with value menus. Adams advocates for abandoning the value menu, which distracts customers and has smaller margins. He also was critical of Wendy‘s attempts at a breakfast menu and is skeptical about its Redhead Roaster coffee program. . ―Wendy‘s needs to continue building and focusing on their core business. Don‘t invest in breakfast; get rid of the 99¢ business. … It‘s more a matter of consistent delivery and marketing. Wendy‘s seem to be complicating the menu. … The industry is built on simplicity, which is why In-N-Out [Burgers] does so well.‖ . ―Wendy‘s is doing the right thing by focusing on one brand. McDonald‘s started buying small brands in the ‗80s. The big success is Chipotle [Mexican Grill Inc./CMG]. But now they are focusing on McDonald‘s. Wendy‘s could see the benefit of doing the same.‖ . ―Wendy‘s was always a stronger brand than Burger King—a better operation and product—and they will continue to be so. They have Wendy‘s needs to continue better franchisees who are more motivated. Burger King has made so many changes in owners and management. Their franchisees are building and focusing on their unmotivated and uncooperative as a group. The reason McDonald‘s is core business. … Wendy‘s is still dominant is they concentrated on keeping franchisees small. The doing the right thing by average is seven now. Burger King franchisees will have 100 spread focusing on one brand. out, in four different states. The typical McDonald‘s franchisee will have three to seven all within an hours‘ drive. They are much more President, Franchise Equity Group, involved. Wendy‘s sits somewhere in the middle.‖ Former McDonald’s Executive . ―The key with franchisees is whether they will buy into change or be forced into it. This is true for remodels and new products. It happens at McDonald‘s but quietly. Burger King‘s constant change in ownership causes franchisee friction. Wendy‘s hasn‘t suffered that much change yet.‖ . ―The focus on premium burgers might impress investors, but as commodities increase, prices get out of hand. Consumers will realize they don‘t have to spend $4 to $5 on one burger, but can get one or two on a value menu. A Big Mac is $3.69; soon it will be $4. At $7 for a combo meal, how much can they get on a value menu? McDonald‘s thinks they have it all figured out, but they don‘t.‖ . ―Wendy‘s sales might be deceptive. They may be spending half their ad budget on the latest campaign. Once coupons go away, how many people will pay full price for that burger?‖
14 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
The Wendy’s Co.
. ―QSRs have to get rid of the value menu. McDonald‘s was smart with their $1 menu branding. They want to get away from that but they are still advertising it. Wendy‘s is the same with their 99¢ menu. They have to get away from that in this market.‖ . ―Six-dollar to $8 combo meals are competing with [Brinker International Inc.‘s/EAT] Chili‘s. QSRs will lose money because margins are low on the 99¢ menu. They have to make up for that on large sandwiches, but they are getting overpriced. You can go to a Five Guys at those prices.‖ . ―Wendy‘s has a problem with their breakfast menu. I don‘t know how they will compete with McDonald‘s, who has been in it 30 years and are so strong. I don‘t think Wendy‘s will make progress there. They will Caution to Wendy‘s with the have to spend a lot of money, and it will have to be a national Redhead Roaster coffee campaign, which means everyone has to do it.‖ program. It‘s an imitation of the . ―That was a mistake McDonald‘s made with their McCafé line. Only McCafé. 65% of their restaurants were serving the product. They spent millions of dollars advertising and promoting it. They made a lot of people angry President, Franchise Equity Group, because they‘d go in with coupons for the McCafé and that particular Former McDonald’s Executive restaurant didn‘t serve it. McDonald‘s jumped the gun, and the last half of 2009 was terrible for them because of it.‖ . ―Caution to Wendy‘s with the Redhead Roaster coffee program. It‘s an imitation of the McCafé. There‘s a difference between McDonald‘s espresso-based machines and their shaved-ice machines. McCafé overall in shaved-ice products went well. The espresso-based drinks went miserably. They average 20 to 25 espresso drinks per day, per restaurant versus 100 or more of the shaved-ice. McDonald‘s has proven customers are not interested in fancy coffee drinks and are not going to get customers from Starbucks [Corp./SBUX]. 2009 proved that.‖
Food service management researcher and professor at a major Southeastern university, textbook author; repeat source The new burgers have been a success for Wendy‘s, though the source is surprised they have taken off as they have. Wendy‘s also is benefiting from consumers trading down from casual dining to QSR. Marketing is key, but promotions and value menus are doubled-edged swords: They may boost sales temporarily, but the impact is lessened over time, especially if profit margins are reduced and if the average ticket remains low with no increase in volume. Wendy‘s split with Arby‘s made sound financial sense. . ―I‘m surprised Wendy‘s new Dave [Hot ‗N Juicy] burger has turned out to be a big seller. With the price point, number of calories and fat content … I‘m surprised that will sell now.‖ . ―Wendy‘s was very innovative in their salad selection. It is well-presented, and being able to mix the menu with chili, salad, etc. makes them unique. Those alternatives are good and Wendy‘s does it better than McDonald‘s and Burger King.‖ . ―The new fries were not that significant an item. People I have talked to were not impressed. [QSRs] are going to come up with new menu items; the problem is, if they create the demand, everyone else will copy it so it‘s not an advantage in the long run.‖ . ―Wendy‘s may now be ahead of Burger King, who had a struggle with their franchisees. Wendy‘s might sneak ahead in market share, but is it that Wendy‘s is doing so much better or that Burger King is struggling?‖ . ―In order to be successful, they need additional transactions. They may pull more [customers and sales] because of the discount, but people Wendy‘s was very innovative in get used to it and have no incentive because they think ‗We don‘t have their salad selection. It is well- to go in now to get the deal.‘‖ presented, and being able to . ―Price is what is selling QSR, fast-casual and casual-themed. People mix the menu with chili, salad, are putting off taking pets to the vet, getting their teeth cleaned, fixing their car and eating out. Restaurants are reporting sales are up year to etc. makes them unique. Those year, but they are not saying how those sales compare to 2007–2008. alternatives are good and The percentage increase sounds good, but it hasn‘t returned to where Wendy‘s does it better than it was before the slide.‖ McDonald‘s and Burger King. . ―I heard 61% of [food industry] transactions are carry-out and take home. Wendy‘s, Arby‘s, Burger King: it‘s all through their drive-thrus. Food Service Management Researcher People are not sitting down. … So the best way to capture customers is
15 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
The Wendy’s Co.
convenience, what‘s close to their house. That‘s probably a McDonald‘s or Wendy‘s.‖ . ―McDonald‘s, Wendy‘s and Burger King have to keep their message out there with marketing. If you see one, you see them all. Whoever blinks will see their share drop. In a recession, you have to have your message out there, promote the value meals.‖ . ―When the merger with Arby‘s came about, there was discussion about why. Everyone was trying to find a way to spin it: this will be a good partnership; their combined commodity buying power will mean better pricing. They were weak reasons and not sufficient to maintain the relationship. … Wendy‘s and Arby‘s were struggling, but now with Wendy‘s breaking away, they aren‘t burdened with Arby‘s sliding [sales].‖ . ―They have two different cultures. Wendy‘s is a different product line—higher ticket prices. Arby‘s is a deli sandwich line requiring a better skill set in the kitchen; it‘s a longer process, one they dealt with a long time ago. It made sense financially to break away.‖
Secondary Sources We reviewed eight secondary sources covering an interview with Wendy‘s new CEO, consolidation of Wendy‘s headquarters back to Ohio, the success of Wendy‘s new products, the store redesigns, and Burger King‘s response to competitive pressures from Wendy‘s.
Oct. 18 USA Today article CEO Emil Brolick talked about his strategy for getting Wendy‘s back on track with a commitment to core products. http://www.usatoday.com/money/industries/food/story/2011-10-17/wendys-ceo-emil-brolick/50806918/1 . ―Wendy‘s new CEO is fed up with the No. 3 burger chain being portrayed as the fallen star of the fast-food industry. In his first interview since being named chief executive last month, Emil Brolick speaks candidly with USA TODAY marketing reporter Bruce Horovitz about his plans to once again make Wendy‘s an industry innovator.‖ . ―Brolick, 63, faces a daunting task: fixing a company with 6,600 locations worldwide that has been rudderless in an ocean of competition since its iconic founder, Dave Thomas, died nearly a decade ago. Wendy‘s is hoping its new ‗Dave‘s Hot ‗N Juicy‘ burger line will help turn things around.‖ . ―But many say Wendy‘s can‘t hold a candle to McDonald‘s, which grabbed the new-product creativity mantle from Wendy‘s years ago. And after churning through a handful of CEOs over the past dozen years, the burning question is: Will this one stick? Brolick, who worked at Wendy‘s before leaving years ago to become president at rival Taco Bell and then COO at Taco Bell parent Yum Brands, must stand today before 3,000 Wendy‘s franchisees gathered in Las Vegas for their annual convention, and convince them that he‘s the right guy. This interview is edited for length and clarity.‖ . ―Q: Wendy‘s has been stumbling since founder Dave Thomas died in early 2002. What difference can you make?‖ . ―A: I‘m a big believer in the importance of leadership in an organization. My leadership can make a difference in this brand. I would not have returned to Wendy‘s if I didn‘t believe that.‖ . ―Q: Got a formula for success?‖ . ―A. I have a simple formula: Have a vision, a strategy, define reality, give hope and execute. A leader has to bring a vision to an organization, because an organization works best when you have an end in mind. Vision is great, but if you don‘t have strategies, people get frustrated quickly. A leader has to define reality and give hope.‖ . ―Q: Wendy‘s has been all over the map—like it doesn‘t know what it wants to be when it grows up. What do you want Wendy‘s to be?‖ . ―A: Wendy‘s has always held a position I‘ll call ‗a cut above.‘ That‘s the natural position for this brand. That‘s the position we‘ll return to. In Wendy‘s heyday, we beat to a different drummer. When the competition zigged, we zagged. We have to focus more on looking out the windshield than the rearview mirror.‖ . ―Q: What would Dave Thomas say about the current state of Wendy‘s?‖ . ―A: Dave would be very unsettled about some things that have taken place. But he‘d be encouraged by the past year, or so. Three years ago, we internally graded our stores, and 35% of them earned an ‗F.‘ Today, we have less than 10 stores, total, in that classification. Dave would say that‘s still not enough, but he‘d be pleased with the progress.‖
16 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
The Wendy’s Co.
. ―Q: What is Wendy‘s biggest problem, and how will you solve it?‖ . ―A: The brand vision has not been there. There have been various versions, but it keeps changing. The consumer senses that this is a brand that lacks clarity. Consumers like brands with clear positions. That‘s what I intend to do.‖ . ―Q: McDonald‘s is modernizing its U.S stores to look more like Starbucks. What about Wendy‘s?‖ . A: We have to reinvent our restaurant base to maintain relevance. Most people refer to this kind of design as "fast casual"—found at Panera Bread and Chipotle. Consumers want more of this. We will test these new designs at two locations each in Columbus, Phoenix, Pittsburgh, Virginia Beach and Toronto. These are brighter, fresher restaurants with more wood surfaces, soft seating in some areas and fireplaces.‖ . ―Q: What does Wendy‘s do better than McDonald‘s right now?‖ . A: Our food is far superior. We do a much better job of giving consumers options and choices. Our food is fresher. Our beef is never frozen. We use leaf lettuce. Our tomatoes are cut in the stores. We don‘t use pre- cooked bacon. And our food labels are much cleaner. The pork sausage we are testing at breakfast has about five ingredients. But ‗Brand X‘ has 14 or 15 ingredients in its pork sausage.‖ . ―Q: You racked up five years of same-store sales growth at Taco Bell, but how can you repeat this at Wendy‘s, which struggles to post even two positive quarters in a row?‖ . ―A: The key is to take our franchise partners along with us, who own 80% of our restaurants. The more enthusiastic they are about the brand, the more excited they‘ll be about bringing the brand to life.‖ . ―Q: What‘s Wendy‘s got riding on Dave‘s Hot ‗N Juicy burger?‖ . ―A: Consumers were telling us that our burgers weren‘t hot, juicy and great tasting. The team recognized that we had to take the standard up on burgers. For any brand, you have to have something that becomes your signature. Hot ‗N Juicy is that for Wendy‘s.‖ . ―Q: What makes it so juicy?‖ . ―A: We grind it differently. And we cook it in a double-sided grill that seals in the juice.‖ . ―Q: Wendy‘s marketing has been a mishmash of messages for several years. What‘s next?‖ . ―A: When we look at the ‗Get Real‘ message, we sense the consumer has no clear indication of the benefit. We need a sharper translation of that idea. We‘re in the right ZIP code, but not at the right address.‖ . ―Q: Wendy‘s iconic ‗Where‘s the Beef‘ slogan recently showed up in a Hot ‗N Juicy ad. Is it back for good?‖ . ―A. No. There‘s a tremendous heritage in that idea. We thought it was the perfect time to bring it back.‖ . ―Q: Wendy‘s has been unable to figure out breakfast. Why—and when‘s the national rollout?‖ . ―A: I don‘t think we‘ve been as thoughtful as we need to be. We‘ll move forward when we have it refined.‖ . ―Q: Wendy‘s doesn‘t have many stores outside North America. Is that going to change?‖ . ―A: We just signed an agreement in Japan—which we had exited, but we‘re going back. We‘re looking for the right way to enter the China market.‖
Aug. 11 Burger Business.com article Wendy‘s is set to introduce a new premium coffee offering called Redhead Roasters to add to the breakfast menu in an attempt to give customers another new product and venture further into the drinks market. http://www.burgerbusiness.com/?p=7885 . ―Wendy‘s North America systemwide same-store sales increased 2.3% in the second quarter, ended July 3, 2011, President-CEO Roland Smith reported this morning. Average check increased 1.4% in the quarter; transactions rose 0.9%.‖ . ―Now free of Arby‘s drag, The Wendy‘s Co. appears energized about strengthening the Wendy‘s brand. Most of what was discussed on today‘s analyst call—coffee, breakfast, burgers, chicken, remodeling—covered territory discussed in the March call, however. The biggest news was ―Redhead Roasters,‖ the name for the upgraded coffee platform Wendy‘s is adding to the menu in tandem with breakfast. A new Iced Coffee will be on the menu soon as the first manifestation of the upgrade.‖ . ―The company‘s challenge now is to get all its franchisees to share its excitement about future opportunities. The Wendy‘s Co. reportedly has filed suit against one franchisee for failing to make the needed investments (about $20,000 per store in grill enhancements) for the October national introduction of the Dave‘s Hot ‗n Juicy Cheeseburgers line, which has provided a sales boost in test.‖ . ―To ensure operator buy-in with next year‘s breakfast rollout, Wendy‘s is offering low-cost loans to help with the $25,000 per-unit investment (new toasters and such). The company has promised to have 1,000 units—
17 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
The Wendy’s Co.
including 600 franchised stores—offering breakfast by year-end. To help reach that, Wendy‘s Co. is offering ―early adopters‖ a partial deferral of royalty payments that can be used to fund local breakfast advertising.‖ . ―Wendy‘s in Manhattan will add breakfast this quarter, Smith promised. Wendy‘s intends to test baked goods such as muffins, sweet rolls and bagels for the breakfast menu, which Smith once again forecast will add $150,000 per store in sales.‖ . ―The company repeated plans to introduce the ‗Gold Chicken‘ upgrade program for that menu category in 2012. This includes the Bruschetta Chicken sandwich topped with tomatoes, chopped basil and ‗balsamic glaze‘ that has been testing this year.‖
Dec. 1 Columbus Dispatch article Wendy‘s is moving more jobs from Atlanta back to its Ohio headquarters in a move to consolidate operations after the spinoff of Atlanta-based Arby‘s. http://www.dispatch.com/content/stories/business/2011/12/01/wendys-moving-jobs-to-ohio.html . ―The Wendy‘s Co. will move an additional 170 jobs to its Dublin headquarters and close all its operations in Atlanta, the company said today. The decision was sparked in part by at least $3 million in additional incentives from the state of Ohio.‖ . ―Wendy‘s will close its Atlanta Restaurant Support Center operations in late 2012 and move the jobs to Dublin. That move plus its earlier decision to relocate its headquarters from Atlanta following the spinoff of the Arby‘s chain will result in a total of 220 jobs being moved to Dublin, spokesman Bob Bertini said.‖ . ―‗While this was a difficult decision considering the excellent employees we have in Atlanta, I believe it is important to bring our entire restaurant support center together in one location,‘ Wendy‘s CEO Emil Brolick said in a statement. ‗This action will help us strengthen collaboration and teamwork as we grow our iconic brand.‘‖
Sept. 28 Nation‘s Restaurant News article Wendy‘s settled a lawsuit with its largest franchisee resulting in the franchise owner agreeing to install the proper equipment necessary for the introduction of the Hot ‗N Juicy burger. http://nrn.com/article/wendys-settles-lawsuit-franchisee . ―The Wendy‘s Co. and its largest franchisee, WendPartners Franchise Group, have settled a lawsuit that began in July with a standoff over equipment required for the brand‘s new Dave‘s Hot ‗N Juicy Cheeseburger.‖ . ―Terms of the settlement were not released, but WendPartners has agreed to install bun-toasting equipment the franchisor required in order to introduce the new burger, which rolled out nationwide last week.‖ . ―WendPartners, a consortium of franchise groups controlled by Lewis Topper, Jeffrey Coghlan and several affiliated companies, operates 329 Wendy‘s locations in 20 states. The group had initially balked at installing the toasters needed for the new hamburger line, prompting Wendy‘s to file the lawsuit.‖ . ―In a response to the settlement, Wendy‘s said: ‗We appreciate the commitment of the Topper organization to the Wendy‘s brand and their partnership in helping to assure the success of Dave‘s Hot ‗N Juicy line of cheeseburgers.‘‖ . ―Wendy‘s said in court documents that the new burgers, which added incremental same-store sales between 2 percent and 3 percent in test markets, resulted from Project Gold Hamburger, which began more than a year ago. The company announced the implementation schedule for the project to its franchise system in late 2010, and won approval for those plans from the Franchise Advisory Council and the Wendy‘s National Advertising Program.‖ . ―Dave‘s Hot ‗N Juicy Cheeseburger is one of several initiatives intended to restore same-store sales growth at Wendy‘s, which earlier this year sold former sister chain Arby‘s to Roark Capital Group, and most recently named as chief executive Emil Brolick, formerly of Yum! Brands Inc.‖ . ―The chain is also testing breakfast in seven markets, as well as four new-store prototypes. Plans to upgrade the brand‘s chicken sandwiches are already underway.‖
Nov. 30 Nation‘s Restaurant News article Wendy‘s is threatening Burger King for the No. 2 fast food restaurant position behind McDonald‘s. The enhanced menu featuring the new burgers, remodeled store designs and plans for a premium coffee offering are some of the reasons for Wendy‘s surge. http://nrn.com/article/analyst-wendys-may-top-burger-king
18 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
The Wendy’s Co.
. ―Wendy‘s soon could leapfrog Burger King as the second-largest burger chain in terms of U.S. market share, according to a new research note from securities analyst Mark Kalinowski of Janney Capital Markets.‖ . ―‗We expect Wendy‘s to overtake privately held Burger King for the No. 2 market share position within the limited-service hamburger sector, perhaps as soon as this year,‘ Kalinowski wrote.‖ . ―The chain has been positioning itself to grow in the upcoming years with upgrades of core menu items like the Dave‘s Hot ‗N Juicy Cheeseburger and W Cheeseburger, and new restaurant designs.‖ . ―Kalinowski‘s bullish projections for Wendy‘s factored in same-store sales momentum and followed a visit to a new Wendy‘s prototype in Phoenix, he wrote. That location not only featured the chain‘s new ‗urban‘ design, but also was testing the Redhead Roasters premium coffee line and baked goods sold during the breakfast daypart, both of which the analyst expects to boost same-store sales over the next several years.‖ . ―For years, Wendy‘s has been the third-largest U.S. burger chain in terms of size and market share, behind No. 2 Burger King and No. 1 McDonald‘s, which has more than 14,000 domestic restaurants. But Kalinowski wrote that Wendy‘s soon could command more of the limited-service hamburger market, despite having fewer locations than Burger King, with 7,523 U.S. restaurants.‖ . ―The vast majority of Wendy‘s more than 6,578 restaurants are located in North America. The brand is testing four different prototypes in several markets this year and said it would embark on a wider remodeling plan over the next few years, which Kalinowski wrote could increase same-store sales 4 percent to 6 percent per year.‖ . ―‗At present, we believe that Wendy‘s has less than 20 revamped restaurants total in the United States,‘ he wrote, ‗which gives the company the opportunity to convert hundreds of them—indeed, thousands—in coming years. All else equal, this should provide a boost to same-store sales trends over 2012 through 2016.‘‖ . ―While Wendy‘s and Burger King both have been upgrading their menus over the past year, Wendy‘s has had more sales success during that time. Same-store sales swung from negative to flat for the first quarter, and then increased 2.3 percent for the second quarter and 0.9 percent for the third quarter. By contrast, Burger King‘s same-store sales losses, while narrowing sequentially, were 6 percent for the first quarter, 5.3 percent for the second quarter and 0.3 percent for the third quarter.‖ . ―Upgrading Wendy‘s unit exteriors and dining rooms should improve perceptions with guests, Kalinowski wrote, noting that the Phoenix prototype ditched the mansard roof that became iconic of quick-service restaurants in the 1970s. He also cited a fireplace and flat-screen TVs as upscale design touches.‖ . ―‗Ultimately, for the better fast-food chains, such features seem likely to become commonplace over time,‘ he wrote. ‗Essentially, these quick-service concepts are upgrading the in-store experience, making them look like some of the better fast-casual concepts over time.‘‖ . ―Wendy‘s prototype also features new equipment and the ability to execute a new breakfast product line, Redhead Roasters, Kalinowski wrote.‖ . ―‗Wendy‘s indicates to us that the Redhead Roasters line of menu items is only available in a very small group of test stores at present,‘ he wrote. ‗We would not be surprised to see some form of Redhead Roasters make its way nationwide in time.‘‖ . ―Janney Capital Markets photos indicate that premium coffees in the line range from 99 cents for a small cup to $1.49 for a large cup, and Iced Roasters are available in mocha, caramel and vanilla flavors for up to $2.49 for a medium cup. Differentiated drinks, such as the Mocha Frosty Roaster and Caramel Frosty Roaster, also are on the menu and could compete with successful blended beverages at McDonald‘s, like McCafé Frappes and Real Fruit Smoothies.‖ . ―Baked goods on the morning menu included Cinna-Middles, a Fresh Baked Oatmeal Bar, a Cinnamon Crumb Muffin, and cookies and brownies.‖ . ―Kalinowski also noted that the Phoenix location‘s two Coca-Cola Freestyle machines, which can pour more than 100 different soft drink flavors and feature a touch screen interface, could be a big segment differentiator if Wendy‘s becomes an early adopter of the technology.‖ . ―‗Over time, we expect these types of beverage dispensers to become standard for many quick -service concepts,‘ Kalinowski wrote. ‗Put another way: If Wendy‘s adopts this technology on a wide scale basis, does anybody really think that concepts such as McDonald‘s will simply let Wendy‘s keep such an advantage over time?‘‖ . ―Dublin, Ohio-based Wendy‘s has indicated in earlier earnings calls that it sees the potential to grow to as many as 8,000 domestic locations and expand internationally to as many as 8,000 franchised locations in such markets as Brazil, China and Japan.‖
19 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
The Wendy’s Co.
May 11 Tri-ParishTimes.com article Wendy‘s is introducing a new Coca-Cola soda dispensing machine in some of its stores, including one in New Orleans where the equipment‘s novelty has captured customers‘ attention and enthusiasm. http://www.tri-parishtimes.com/articles/2011/05/11/business_news/234_52_wendyssodatestpg1.txt . ―It might be the biggest thing since the soda jerk, a soft drink dispenser that is not limited to a few select flavors, but offers the consumer 125 different basic options and a seemingly unlimited number of mixing combinations.‖ . ―The Coca-Cola Freestyle is being tested at Wendy‘s restaurants in Houma as well as 47 of the fast food chain‘s other New Orleans region locations.‖ . ―‗I‘m drinking things I never thought I would,‘ said Wendy‘s store manager Danielle Rideaux as she created a grape Sprite at the West Main Street location in Houma. ‗It‘s really popular [with customers].‘‖ . ―The Coca-Cola Freestyle is about the size of a standard soft drink vending machine, but instead of being connected to canisters or stocked with large containers of product, the units employ technological workings suitable for the 21st Century.‖ . ―Pre-mixed recipes of main soft drinks and added flavors are stored in 24 cartridges that resemble ink containers for computer printers. On a touch screen, the customer selects what combinations of flavors are desired for the purchase. Once a selection is made, the flavors mix with water and pour into the customer‘s waiting cup.‖ . ―‗With this particular technology consumers were telling us, ‗We really like the variety that we see at convenience stores and supermarkets, but when we‘re in restaurants or places where there are fountain dispensers we are limited to only five or six choices. So we want some of the rest of your portfolio. We want to experience that in restaurants,‘ Coca-Cola group director Jim Sanders said of the Coca-Cola Freestyle origins.‖ . ―Sanders and Rideaux each noted that young consumers in particular enjoy the creative mix-and-match element of the soft drink dispenser. ‗They‘ll take a Coke orange mixed with a Coke vanilla and do half of each in a cup and that tastes like a dream-sickle in their minds,‘ Sanders said. ‗It lets the consumer have a drink the way they want it.‘‖ . ―‗Wendy‘s got in early and said, ‗We like what you‘re talking about,‘ said Wendy‘s director of area operations Andy Sims. ‗The feedback from customers is fantastic, especially the younger customers.‘‖ . ―Sims declined to specify product cost or gross margin made by Wendy‘s on the Coco-Cola Freestyle, but did admit that for now the company is experiencing an approximately 15 percent increase per serving for the cost of making a drink than they had with previous soft drink dispensers. It is an element he expects to be changed as the machines become more popular and restaurants benefit from volume sales. He pointed out that prices to the customer have not changed. "We‘re losing a little bit of profit [for now], but we don‘t care. We think the customer is going to be blown out by the quality and selection and it is going to be a winner for us long term," he said.‖ . ―Store managers are trained to maintain the machines, check product levels, which Rideaux demonstrated can be done with a few touch screen moves, and trading out empty product mixtures. ‗It is a lot easier than those big bags [in boxes] we used to have,‘ she said.‖
Dec. 6 Nation‘s Restaurant News article Burger King is the latest restaurant chain to commit to Coca-Cola‘s unique soda dispensing machine and will roll it out to all of its U.S corporate stores. http://nrn.com/article/burger-king-use-freestyle-beverage-fountain?utm_source=dlvr.it&utm_medium=twitter . ―Burger King is expanding its use of the new Coca-Cola Freestyle beverage machines, the company said Tuesday, and this week it also will be offering free Whoppers for a holiday limited-time offer.‖ . ―Officials with the Miami-based burger chain said they plan to install the high-tech Freestyle machines in the more than 850 company-owned locations across the country.‖ . ―Currently, about 120 Burger King locations have the machines, which offer guest the option of customized drinks from more than 100 brands using touch-screen technology.‖ . ―Steve Wiborg, president of Burger King Corp.‘s North America division, said in a statement that the fountains will further enhance the guest experience at the quick-service chain, which has been undergoing menu upgrades since it was acquired by private investor group 3G Capital Management in 2010.‖ . ―‗The ability to customize your own beverages combined with the quality that Coca-Cola Freestyle delivers to our guests is a perfect addition to our most recent menu offerings,‘ he said. ‗We‘re excited to be the largest
20 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
The Wendy’s Co.
franchise system in the United States to roll out the fountains in all company-owned restaurants and look forward to further growing our business with Coca-Cola as our partner.‘‖ . ―Coke officials said the move will make Burger King the largest chain to bring in the fountain machines. The 930-unit Five Guys Burgers and Fries chain has said it will add Freestyle machines systemwide—although fewer than 86 locations have them currently and the move would be optional for franchisees. The 450-unit Firehouse Subs chain also plans a systemwide rollout of Freestyle machines.‖ . ―Other chains, including Wingstop, Taco Mac, Wendy‘s and The Counter, also have brought in the Freestyle machines to some locations or are testing them. Some operators have said the high-tech functionality and customizable experience for the consumer has helped drive beverage sales. Others have mentioned challenges in longer pour times and longer lines for customers who may not be familiar with how to use the machine.‖
Nov. 30 ABC6 on Your Side article Burger King is revamping its french fries, much like Wendy‘s did a year ago. http://www.abc6onyourside.com/shared/newsroom/top_stories/videos/wsyx_vid_14900.shtml . ―For the first time since 1998, the nation‘s second largest fast-food chain is rolling out a new, thicker french fry in order to compete with Dublin-based Wendy‘s.‖ . ―Financial experts say Wendy‘s may soon take over as the America‘s second largest fast-food giant, replacing Florida-based Burger King‘s rein.‖ . ―Much of Burger King‘s concern is attributed to Wendy‘s aggressive newer menu, including 2010‘s unveiling of ‗sea salt‘ french fries and new, trendy, techno-savvy restaurant themes.‖ . ―Burger King‘s new french fries are thicker, therefore, holding in more heat, less sodium and retaining more crispiness.‖ . ―The majority of Burger Kings‘ 7,000 stores will have the new fries by the first Monday in December. But, ABC6/Fox28 News‘ Dana Turtle already found the new fries at Burger King‘s West 5th Avenue restaurant in Columbus.‖ . ―Fast-food customers he spoke to said it was important to them for the fast-food chains to remain competitive by providing healthier, higher quality foods.‖ . ―Smaller chains, like the popular Five Guys, are also driving up the quality benchmark.‖ . ―McDonald‘s, of suburban Chicago, continues to be the dominant market leader in the United States, with nearly 50 percent of the fast-food customer base.‖
Next Steps Blueshift‘s next report on Wendy‘s will focus on demand for its new menu items, including the new burgers, and assess upcoming products like the Redhead Roasters premium coffee. We also will follow up on store remodeling and new stores‘ ability to sustain traffic growth. Finally, we will check the progress of Wendy‘s breakfast rollout.
Additional research by Carolyn Marshall, Lindsay Gadsby, Tina Strasser, Jacqueline Fox and Erica Franklin
The Author(s) of this research report certify that all of the views expressed in the report accurately reflect their personal views about any and all of the subject securities and that no part of the Author(s) compensation was, is or will be, directly or indirectly, related to the specific recommendations or views in this report. The Author does not own securities in any of the aforementioned companies.
OTA Financial Group LP has a membership interest in Blueshift Research LLC. OTA LLC, an SEC registered broker dealer subsidiary of OTA Financial Group LP, has both market making and proprietary trading operations on several exchanges and alternative trading systems. The affiliated companies of the OTA Financial Group LP, including OTA LLC, its principals, employees or clients may have an interest in the securities discussed herein, in securities of other issuers in other industries, may provide bids and offers of the subject companies and may act as principal in connection with such transactions. Craig Gordon, the founder of Blueshift, has an investment in OTA Financial Group LP.
© 2011 Blueshift Research LLC. All rights reserved. This transmission was produced for the exclusive use of Blueshift Research LLC, and may not be reproduced or relied upon, in whole or in part, without Blueshift‘s written consent. The information herein is not intended to be a complete analysis of every material fact in respect to any company or industry discussed. Blueshift Research is a trademarks owned by Blueshift Research LLC.
21 321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com