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Amid strife, Wendy’s stresses what’s worked and what’s next

DUBLIN Ohio Facing a lawsuit and other signs of franchisee dissent, Wendy’s International Inc. on Wednesday sent all employees and franchisees a letter that applauded the system’s turnaround progress and outlined such “Phase II” initiatives as focusing on burgers, breakfast and snacks.

A copy of the letter, which can be seen here, was obtained by Nation’s Restaurant News. In it, Wendy’s chief executive Kerrii Anderson alerted the system that the company would strive near-term to increase sales and profits at every unit and thereby turn around the No. 3 burger brand, which has suffered from weak same-store sales and growth trends, especially in comparison with McDonald’s and Burger King.

The letter, coming amid news reports and speculation related to Wendy’s six-month-long consideration of a sale or other strategic options, took on a defensive tone at times.

“Despite all of the media stories and speculation, it’s important that we all stay focused on the business and building for the future,” Anderson wrote.

Wendy’s also is exploring a change in strategic direction or a large recapitalization.

Just a day before the letter was sent, Wendy’s largest franchisee, DavCo Restaurants Inc., filed a $2 million lawsuit against the franchisor for allegedly overcharging the 160-unit operator for soda syrup and diverting the extra money to a national advertising fund. The suit also calls into question Wendy’s relationship with its soda vendor and whether franchisees should be restricted to certain providers. Crofton, Md.-based DavCo could not be reached for comment by press time.

Wendy’s senior vice president of corporate affairs and investor relations, John Barker, said the lawsuit “has no merit” and that the company planned to “vigorously defend the Wendy’s system and brand.”

DavCo was one of 16 Wendy’s franchisees that last month penned a letter to the franchisor asking to be included in any potential talks related to a sale of the company and alleging that the franchisee community had been left out of corporate decision making. Wendy’s officials called those accusations “flatly wrong” and said the company had taken “special steps” to reach out to franchisees.

In today’s letter, Wendy’s identified 10 key initiatives for 2008 that are expected to drive customer traffic, build unit-level efficiencies and improve restaurant returns. Those initiatives include continued use of Wendy’s “Red Wig” and “Hot n’ Juicy” burgers ad campaigns. The company said the chain would promote mix-and-match Combo Choice meals and Double Melt burgers during the fourth quarter. In addition, Wendy’s said it has planned a promotion with the National Football League and a music-download tie-in with the Rhapsody online music service.

The chain’s Value Menu also will be highlighted for the remainder of this year and into 2008, the company said.

“We must continue to strengthen margins by attracting customers with premium a la carte value items and value bundled meals,” Anderson said in the letter, “and we’re testing elements of our value strategy in the 4th quarter.”

Wendy’s said it also plans to focus on its beverages, including iced tea, specialty coffee and Frosty choices, as well as its late night and earlier snacking opportunities and its continued breakfast rollout. Reinvestment in restaurants also was a major initiative, according to the letter. Anderson said restaurant reimaging was “critical to meeting consumer needs, becoming more competitive, and driving long-term sales improvement.”

 In recapping a year’s worth of turnaround work, Wendy’s said its earnings from continuing operations, before interest, tax, depreciation and amortization, through July 1 was 88 percent higher than the same time last year, and that U.S. corporate restaurant margins had increased 2 percent from a year ago. The chain also highlighted in the letter that it has recorded five consecutive quarters of same-store sales growth, which it said was the result of increased brand awareness among younger consumers and new products like the Baconator.

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