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WEN Boosts Sales with New Items but Needs Core Focus Reverdy Johnson, [email protected], 415.364.3782 H REPORT WEN Boosts Sales with New Items But Needs Core Focus Companies: BH, MCD, PNRA, SBX, WEN January 20, 2011 Research Question: Will the combination of new products at Wendy's and reports of stabilization at Arby's lead to a rebound for the company in 2011? Silo Summaries Summary of Findings 1) FRANCHISE OWNERS Franchise owners expect store sales to increase in 2011. A repeat Two sources expect 2011 sales to increase in the Arby’s franchise owner said he is more confident now than at any low single digits because of new menu items and an other time in the last two years. Store personnel reported recently increased emphasis on core menu offerings. The higher sales because of new menu items. Arby’s franchise owner is more confident because of improved advertising and strategies from corporate. Wendy’s breakfast trials in Columbus, OH, have been successful because of quality items that are fresh, well-priced and on par with 2) SUPPLIERS competitors’ breakfasts. The coffee also was praised. Widescale Three sources said Wendy’s is performing well, and an industrywide increase is likely because of the adoption will be determined by franchise owners, who are concerned recovering economy. One source said Arby’s is about equipment costs. stabilizing, but another said it is slipping. The Wendys’ Natural-Cut French Fries were commended by primary industry trend is toward efficient multitasking sources, who reported higher sales and orders for fries year to year. equipment and smaller, healthier portions. However, no source said the fries were enough to draw people into 3) WENDY’S STORE MANAGERS stores. Secondary sources panned the fries and demanded a return to Five sources said the Natural-Cut French Fries are the original. The new DT Deluxe cheeseburger appears to be on track selling better than the original. Breakfast items and in Las Vegas trials and has been praised by customers. the DT Deluxe cheeseburger also are garnering strong positive attention. Stores reported an overall Suppliers and industry experts expect QSR industry growth in 2011, sales increase. The key to a successful national driven largely by the recovering economy. They had mixed opinions on expansion will be to convince gun-shy franchise Wendy’s and Arby’s, but agreed these brands need to focus on core owners to purchase the necessary equipment. items and marketing rather than menu expansion. 4) ARBY’S STORE MANAGERS Chick-fil-A Inc. is an emerging niche player with a following and unique Two Arby’s managers said business improved product, similar to earlier Blueshift QSR reports discussing loyalty for recently. Customers are attracted to the value menu. In-N-Out Burger and Panera Bread Co. (PNRA) The size of the value menu items is smaller. One store is focused on improving operations and getting more profit from the value menu by choosing the Wendy’s WEN Rebound Wendy’s Fries a right items and encouraging add-ons. Breakfast Can in 2011 Success Succeed 5) WENDY’S CUSTOMERS Franchise Four sources said they prefer the Natural-Cut French Owners Fries over the original recipe. The other two sources praised the breakfast trials for the quality and value. All six sources are spending the same amount per Suppliers visit. Wendy’s Store 6) ARBY’S CUSTOMERS Managers Three sources said they have kept their visits and Arby’s Store spending at Arby’s steady in the last year. They are N/A N/A Managers not driven by the value menu; one said the value items’ portion sizes were too small. Sources liked Wendy’s Arby’s for its core products and ability to customize Customers orders. Arby’s N/A N/A 7) INDUSTRY EXPERTS Customers Three sources are underwhelmed by Wendy’s efforts Industry Experts to rebound. They said neither Arby’s nor Wendy’s elicits any significant response from customers. The key for both brands is to focus on core items to maintain market share, and better and more marketing to increase traffic. 1 321 Pacific Ave., San Francisco, CA 94111 www.blueshiftideas.com WEN Boosts Sales with New Items But Needs Core Focus Background A recent report said Arby’s, long a drag on Wendy’s Arby’s Group Inc. (WEN) with slower-than-expected execution on a turnaround plan, is stabilizing. Selected Arby’s stores benefited from higher same-store sales in the fourth quarter. Wendy’s has come out with new products, including revamped french fries, a new burger launched in Las Vegas and a trial breakfast in Columbus to keep the company moving forward. This report aims to see how those developments are taking shape and if they will indeed lead to a successful 2011. CURRENT RESEARCH Blueshift employed its pattern mining approach to establish and interview sources in eight independent silos: 1) Wendy’s and Arby’s franchise owners (2) 2) Food and equipment suppliers (3) 3) Wendy’s store managers (5) 4) Arby’s store managers (2) 5) Wendy’s customers (6) 6) Arby’s customers (3) 7) Fast-food industry experts (3) 8) Secondary sources (5) Blueshift interviewed 24 primary sources, including six repeat sources, and included five of the most relevant secondary sources focused on information and reviews of new products like the Natural-Cut French Fries, breakfast, and the DT Deluxe cheeseburger. Silo 1) WENDY’S AND ARBY’S FRANCHISE OWNERS Two sources expect 2011 sales to increase in the low to mid-single digits because of several new menu items and an increased emphasis on core menu offerings. The Arby’s franchise owner is more confident than at any time in the last two years because of improved advertising and strategies from corporate. The Wendy’s owner preferred to raise the company profile in the premium burger market with an emphasis on burgers rather than value meals and a new breakfast. He is selling more french fries since the change to the new recipe. The owner of a Wendy’s franchise with 38 stores in the Southeast This repeat source estimates store sales rose 2% to 7% thanks to new menu items. He was confident sales would improve in 2011. Improving core items like burgers could renew Wendy’s stature in the premium burger market, but doing so would be difficult if corporate decides to push sales of breakfast items or value meals. “Our sales are higher, and I know we are doing better because we are selling a higher number of french fries and meals. I know our sales are up, but I don’t know by how much or how much of an impact it would Our sales are higher, and … we have on a bottom line improvement. It’s premature to say, but I would are selling a higher number of guess sales are up between 2% and 7%. It’s also important to look at what happens eight weeks from now. At this point, we know the french fries and meals. … I introduction has been well received.” would guess sales are up . “The french fries are doing very well. When you make any change, between 2% and 7%. … At this there are always some people who reject it. ... That’s the risk, but in point, we know the introduction this case many more have accepted it.” . “We were part of the test market for the new burgers. Our test area has been well received. was on a par with Las Vegas, and their results are very similar to how Owner, Wendy’s Franchise we did. It has helped us. It has definitely been a plus. What happens Southeast over the next eight weeks will be important.” . “I feel very enthusiastic and excited to see what happens with new menu items over time, but it’s a little premature. Overall business is better for us. The new burger is doing exceptionally well. The fries are helping. 2 321 Pacific Ave., San Francisco, CA 94111 www.blueshiftideas.com WEN Boosts Sales with New Items But Needs Core Focus Also, in our area, the oil spill checks have been coming into the Gulf Coast, and that is pumping money into the local economy.” . “The new burger has an upgraded bun, real mayonnaise, a crinkle-cut pickle, red onions and a more tender beef patty. It essentially is a repositioning of the single and double burger. This will put us back in the premium burger arena and build up our brand equity.” . “I think we have good new-menu items. I think it’s just a matter of execution and sustainability. There is no doubt the hamburger is better. If we improve our core It’s not necessarily a lot different. It is still a 1/4-inch patty, but it is thicker and it is perceived as being better.” products, we will improve . “Our biggest challenge in 2011 will be menu management and mix. We Wendy’s. … There is still a know commodity prices will not slow. Delivery charge prices and the price conflict between how corporate of oil, corn and wheat all are up. We have to be smart about what new thinks about the value items we promote and advertise.” . “I think our biggest success will be the menu enhancements that put us proposition and how franchises back in the premium burger market. Our potential success will be view the value/$1 menu. … The strengthening and upgrading the core menu items—the hamburger, the franchise owners do not bacon burger and the chicken. Over the past 40 years, the company has believe value is a 99¢ meal.
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