Do not evaluate The Wendy’s Co (NASDAQ:WEN) by its quarterly report. It is true that the performance wasn’t inspiring in the first quarter with revenue of $603.7 million falling short of analyst estimates of $615 million and adjusted earnings of $0.03 just matching predictions. Same-store sales growth in North America was also just about 1%.
But if we look closely at the well-planned moves that the company is making, we will find that The Wendy’s Co (NASDAQ:WEN) is slowly and steadily positioning itself for a much bigger game.
For any restaurateur, it is always the quality of food and menu innovation that steals the game. And this is where Wendy’s scores big.
The company is regularly coming out with new offerings which beat the regular quick-serve fare and look more in the league of fast-casual chains. The Asiago Ranch Chicken Club, Baconator, Bacon Portabella Melt, etc. are all cases in point. The latest in this area is the upcoming pretzel-bacon cheeseburger, which has created lots of buzz.
The Wendy’s Co (NASDAQ:WEN) has correctly inferred that people are more inclined toward healthier options these days. So toward the beginning of the year, we saw a limited-time fish sandwich made with North Pacific Cod hand-cut fillet. In March, there was the five-grain flat-bread grilled-chicken sandwich and in May we saw a fresh salad every day made in three different sizes.
The Wendy’s Co (NASDAQ:WEN) began its image activation program in 2012 whereby it started renovating its restaurants to provide a fast-casual like ambiance. The modernized restaurants have flat-screen televisions, Wi-Fi, faux leather chairs, and even cozy fireplaces.
This initiative is carried out at three different investment points. The tier-one is the costliest and most of last year’s remodeling fell in this category. Subsequently, Wendy’s has come out with tier-two and tier-three plans, which are less expensive but the results are no less dramatic. More than half of the re-imaging in 2013 will be tier-two and tier-three models. The company will be completing 200 re-images this year, up from 48 last year.
Franchisees are upbeat about the renovations and the company has received as many as 100 applications from them for the re-images.
It is estimated that tier-one renovations can yield up to 25% increases in sales while tier-two can improve sales by 15%. Tier-three sales improvements will also be noteworthy. In fact, the company believes that the tier-three investments will yield the strongest returns. Once the incremental sales start pouring in, The Wendy’s Co (NASDAQ:WEN) can put up mind-boggling numbers.
Value menu promotions
A recent area of concern for The Wendy’s Co (NASDAQ:WEN) has been its weakness in the value-menu segment. While it does have its tiered ‘Right Price, Right Size’ menu featuring items priced between $0.99 and $1.99, what it lacks is consistency and good promotions at the $0.99 price point. This weakness resulted in some loss of market share, as well.
But now the company has woken up to the importance of the $0.99 items and promotions and is planning to have six items at this price. It will also engage in aggressive promotions of its value offerings. This should have a positive effect on the same-store sales numbers going forward.
Until 2009, Wendy’s was operating only in North America. However, since then, the company has decided to foray into other international markets and the result is some 374 franchised locations in 26 countries apart from the US and Canada. The company intends to embark on an aggressive international expansion strategy.
The latest on this front is that The Wendy’s Co (NASDAQ:WEN) has recently entered into a long-term agreement with the ‘Eljuri Group’ to launch 20 restaurants in Ecuador. During the first quarter, Eljuri already launched the first two in Guayaquil, a coastal city with a population of 2.3 million.