Wendy’s/Arby’s CEO Smith faces turnaround battle

Wendy’s/Arby’s CEO Smith faces turnaround battle

NEW YORK —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

As leader of the Atlanta-based parent company of the Wendy’s and Arby’s chains, as well as the management team of Dublin, Ohil-based Wendy’s, he has been charged with orchestrating a turnaround for the No. 3 burger brand, which has steadily been losing market share to rivals McDonald’s [3] and Burger King [4]. Adding to Smith’s challenge are the unprecedented sales and cost pressures confronting the entire restaurant industry. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

Arby’s, though smaller than Wendy’s 6,600-plus-unit system, faces its own problems. Some analysts have suggested that the Atlanta-based chain of about 3,700 sandwich units is losing customers to competitors Subway and Quiznos, both of which have garnered traffic with discounted $5 offers. Arby’s third-quarter same-store sales fell 7.2 percent at corporate units. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

“We’re clearly under a microscope,” he told Nation’s Restaurant News during a recent interview in New York. Then, referring to both the difficult economic and operating climates, he added, “And I’d always pick easy over hard…[But] we have the leadership and plans in place to really turn this thing around.” —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

For Wendy’s, those plans include a focus on higher-quality offerings, which has long been a Wendy’s hallmark, a new breakfast strategy, additional beverages, and a marketing plan to draw older customers back to the brand, unlike Wendy’s previous Red Wig-infused attempts to woo younger male consumers. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

Smith concedes that will take time, and some analysts have said they can’t see a meaningful sales turnaround until 2010. The starting point isn’t an easy one. For the quarter ended Sept. 28, both Wendy’s and Arby’s posted losses, and restaurant margins at Wendy’s fell 2.9 percent from a year earlier. Its same-store sales fell 0.2 percent at corporate locations and rose 0.2 percent at franchised units. Arby’s was able to increase its year-to-year earnings before interest, tax, depreciation and amortization, but also fell victim to margin pressure. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

The merger of the two chains and their respective corporate operations will provide synergies and cost savings for the corporate structure, but observers and Smith say Wendy’s turnaround needs to focus on food and operations above all else. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

“If you swing for the fences, what do you get?” Smith said. “Mostly strikeouts, and there are a lot of companies doing that right now. We have a plan to get a solid single, and pretty soon you hit singles that score. If we regularly get on base, we will win.” —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

Securities analyst Steven Kron at Goldman Sachs said in a recent report that some of Wendy’s main challenges include finding a profitable strategy for breakfast, which so far has eluded the brand, and gaining traction on a marketing campaign—something McDonald’s and Burger King have benefited from for years. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

“The role of a consistent and meaningful marketing campaign is underappreciated by the market in its impact on driving sales,” Kron said. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

To that end, Smith said, Wendy’s will attempt to skew its brand toward an older audience of adults 24 to 49 years old, a group of consumers that wants quality as well as value, unlike the 18- to 24-year-old males who are heavy fast-food consumers but typically spend much less when dining out. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

“We have got to get the brand back to what it really owned: a high-quality and innovative menu,” Smith said. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

As for breakfast, Smith was mum on any details other than to say that the daypart is a huge opportunity for Wendy’s, but the company needs to find a way to make it work with the brand. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

Those who have worked with Smith during his former role as leader of Arby’s when it was owned by Triarc Cos. Inc. [5], say he is up to the challenge at Wendy’s and will use his detail-oriented and taskmaster approach to effect change. While few would speak on the record, many pointed to his military background—Smith is a graduate of West Point—to describe his management style. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

Wendy’s/Arby’s would not grant access to senior management at either chain, but Nelson Peltz, a board member and large shareholder of the company, commented on his expectations of Smith via an e-mail statement to NRN. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

“Roland has a track record of excellent operating performance and is a truly outstanding executive,” Peltz said. “We are very confident in his ability to lead the newly formed Wendy’s/Arby’s Group.” —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

Brad Honigfeld, chief executive of The Briad Group [6], a large Wendy’s franchisee, said in an interview that there is excitement among many Wendy’s franchisees. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

“I’m personally ecstatic,” he said. “I believe leadership is everything, and I have the utmost confidence in Roland.” —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

He said the chain obviously faces some challenges but that it is “poised for significantly better times ahead,” especially with David Karam now serving as president of the chain. Karam is a long-time Wendy’s franchisee who also participated in the chain’s buyout auction. Many franchisees were long unhappy with Wendy’s management teams who, they said at the time, lost their way after brand founder Dave Thomas died in 2002 and then became distracted by the company’s sale. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

Smith, however, is generating some good will and excitement among the group. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

He is aware that many franchisees are most concerned about profitability, and he will work to grow sales in a way that also boosts the bottom line. While value pricing, like Wendy’s latest 99-cent promotions, is needed to be competitive, the chain will look at its value menu and food costs so that both quality and profit are top priorities, Smith said. Wendy’s derives almost 25 percent of sales from its value menu, a percentage well above its peers, which typically garner 10 percent to 15 percent of sales from value, or dollar, menus. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

“In today’s marketplace value has to be a focus,” he said. “But we will not focus either brand on just price points.” —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

At Wendy’s, October same-store sales rose 5 percent, a result the company pegged on its value promotions for 99-cent sandwiches, such as the Double Stack. The company did not reveal what kind of flow-through to profit that sales spike led to. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

Smith is also aware of the Wendy’s culture he has stepped into and the animosity felt by some about the chain’s sale. Wendy’s drawn-out buyout process pitted mom-and-pop franchisees and the family of Dave Thomas against investing titan Peltz, with Peltz claiming victory when he was able to close the $2 billion-plus deal in September. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

Peltz showed further commitment to Wendy’s this month by initiating a tender offer for up to 40 million Wendy’s/Arby’s shares, at a 26-percent premium to the share price. The offer, through Peltz’s Trian Partners, would bring the investment fund’s stake to nearly 20 percent if completed as planned. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

Smith, while speaking highly of Peltz and his leadership, also said he admired Dave Thomas and the values that he had instilled into Wendy’s, the chain Thomas named after his daughter. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

Observers note that Smith, who wears a green band around his wrist to remind him of the values he embraces in life and in work, including integrity, accountability, teamwork and respect, also exemplifies determination and commitment. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

Smith recently climbed Mount Everest and hoisted a flag bearing the new Wendy’s/Arby’s Group logo there, illustrating his commitment to the business and readiness for the challenges ahead, according to one Arby’s executive who asked not to be identified. —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.

“No one can ever replace Dave Thomas,” Smith said. “We want to take the values he used to take this brand and grow it and be relevant again.” —Roland Smith, chief executive of the new Wendy’s/Arby’s Group, knows he has a tough road ahead of him.