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Wendy's eyes menu upgrade

A Head on the Call report following third-quarter earnings

In his first conference call with investors since being named chief executive of The Wendy’s Co., Emil Brolick discussed menu news, from the successful launch of Dave’s Hot ‘N Juicy Cheeseburger to ongoing testing of the brand’s breakfast platform.

Brolick also announced the introduction later this month of the W sandwich, an offering with two 2.5-ounce burger patties and premium ingredients from the Dave’s burger, but at a $2.99 price point between the newly launched item and burgers offered on the 99-cent My 99 Everyday Value Menu.

EARLIER: Wendy’s reports $3.97M loss in 3Q

In previous earnings calls, Wendy’s management had said the test of Dave’s Hot ‘N Juicy Cheeseburger drove same-store sales increases 2 percent to 3 percent above the rest of the system’s results. Brolick told investors that results for the fourth quarter are trending “well above that,” and said the brand had its best five-week sales period since 2004. The sandwich went systemwide in late September, but momentum carried through the Oct. 2 close of the third quarter and into the start of the fourth quarter.

“The thing we feel we’ve done with the launch of Dave’s Hot ‘N Juicy is refocusing on core items,” Brolick said. “What’s really gotten us back into the business is selling large hamburgers, chicken sandwiches and salads as a balance with our My 99 value menu. We probably went through a time as a brand where that [balance] got a little out of whack, so we feel really good about the momentum we can sustain.”

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Climbing to “a cut above”

The higher-quality food aspects, from the ingredients in Dave’s Hot ‘N Juicy to similarly upgraded chicken sandwiches slated to debut early next year, will help Wendy’s reclaim a positioning officials said the brand had lost, which Brolick described as being “a cut above.”

“This is the natural position for the brand,” Brolick said. “We went through a period of time as a brand where we stepped back from this position, and we have to step back into it. I’m not suggesting that we want to become a Five Guys or Smashburger or something like that … but I do believe there’s a significant opportunity in the marketplace for higher-quality products that are fresh, made-to-order products.”

While Brolick complimented the “new QSR” chains in fast casual like Chipotle, Noodles & Co. and Five Guys for elevating food quality and freshness — even going so far as to reference Chipotle’s “Food With Integrity” slogan — he said Wendy’s is the traditional fast-food chain most suited for making that kind of quality its competitive advantage.

Introducing the W mid-tier sandwich so soon to the launch of the more premium burger is meant to move sales from the lower price points rather than encourage trade-down from Dave’s Hot ‘N Juicy, Brolick said.

“We’re trying to have a price point at $2.99 that is closer to where some of the My 99 or $1.29 products are so we trade people up into those products,” Brolick said. “Believe me, we’re going to continue on an ongoing basis to put some pressure against Dave’s Hot ‘N Juicy as we look to next year. As we look back historically, by not putting pressure on some of our core and chicken sandwiches, that contributed to the erosion in some of those products.”

RELATED: Analyst: Wendy’s growth won’t slow

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Looking to rise and shine

The brand also remains optimistic that the breakfast platform being tested in seven markets would be a big opportunity for Wendy’s to grow sales in the near future and over the long term. Wendy’s planned breakfast items like the Artisan Egg Sandwich, Grilled Breakfast Panini or Warm Oatmeal Bar are supposed to fulfill the brand’s intended “five-star food for three-star prices” positioning.

Though Wendy’s said in earlier conference calls that it intended to introduce breakfast in 1,000 locations by year-end, the chain will no longer update analysts on incremental milestones toward a systemwide launch. The key to spreading the menu to more locations would be integrating the Redhead Roasters coffee program and bakery items in test with the breakfast sandwich line also being tested, Brolick said.

“We want to go out there with an offering that’s distinctive,” he said. “We feel that by taking the approach we’re taking, we are ultimately going to have a much stronger and more successful offering in this arena.”

Wendy’s needs to take advantage of growth projected for the breakfast daypart over the next 10 years, Brolick said. He added that Wendy’s would advertise the morning meal consistently and aggressively, like McDonald’s.

Getting Wendy’s locations prepared for breakfast also will require ongoing investments in training staff to improve service and to remodel restaurants along one of the brand’s four prototypes being tested, Brolick said.

“Demographics support this, because as people age, they like to spend more time in the restaurants,” he said. “With the launch of breakfast, we know we have to do better in the dining room, particularly on weekends.”

Contact Mark Brandau at [email protected].
Follow him on Twitter: @Mark_from_NRN

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