Wendy’s Co Earnings Call Nuggets: Product Rollout and Management

Wendy’s Co (NYSE:WEN) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared.

Product Rollout

Michael Gallo – CL King: A couple of questions. Emil, just on breakfast. I know there’s been maybe a little uncertainty as to kind of how quickly things will rollout this year, going into a new market in the Northeast. Can you just talk a little more about some of the learnings, some of the things that you’re still kind of tweaking? Obviously, the consumer feedback on the product has been very good. It is just a matter of getting that profitability up. I mean you noted I think at your Analyst Day that the couponing was reduced and you were able to hold to sales. So help us just to how we should think about breakfast and kind of what kind of I’s you need to dot and T’s you need to cross before you can really roll that out more aggressively.

Stephen E. Hare – SVP and CFO: Michael, in fact, two weeks ago we met with our franchise leadership groups from the United States as well as the franchise leadership group from Canada and we had them all in Phoenix, Arizona as I mentioned and we certainly had the opportunity to talk extensively about Image Activation as well as breakfast. As we’ve shared with you in the past that we looked for, what we call, three green lights. One of those is operations, one consumer and then the third is, of course, financial. We have demonstrated to our franchise partners that certainly we’ve got a strong green light operationally. In fact we’re seeing from our own internal metrics that at the breakfast daypart, we probably have the strongest performances. We have a green light from a consumer point of view and the area that we still are working on with our franchise partners is in the financial area. Obviously when you launch an initiative like breakfast, you’re going to have to take a different approach in terms of your marketing communication and as this would require incremental marketing dollars to really drive this because what we’ve seen in studying launches of other competitors on breakfast is that they would make a big portion then they wouldn’t necessarily sustain that and so we have laid out a program that we would make sure that we would not only have the big portion but we would sustain it. So when you build all those cost into the P&L, it’s a different kind of look and I’m not talking about our P&L but really at the restaurant level P&L. So, that’s really where most of the conversations are still taking place. They’re very much behind us continuing to get the learning, continuing to expand into the (royalties) market because obviously there are unique competitive situations there that would include, for example Tim Hortons in some markets as well as obviously Duncan has a strong presence. So, there is very productive dialog continuing and I will also say Michael that they appreciate that over the past five years that breakfast has been the strongest growing daypart and that when you look out it’s also projected to continue to be a strong growing daypart and they understand that.

Michael Gallo – CL King: Hey, Emil, then just a follow-up question that’s helpful. On the Image Activations, you’ve obviously talked about having 80 of these between new and reimages in the Company stores by the end of the year. I was wondering if you also expect some franchisees to begin to put the program in test in 2012.

Emil J. Brolick – President and CEO: We do Michael and actually – we’re actually having the turn away franchisees on this and the way I – and the reason for that is we’ll probably have somewhere between three to five franchisees participating with us in this year, and when I say turn away, because we are very, very serious about the people piece of this is well is the physical asset piece and it’s almost like getting the asset piece built and that’s almost the easier piece, the harder part is making sure of that we retrain the employees we really provide consumers this Cut Above experience when they get in there. So the asset piece is consistent with the people piece. We’re very serious about not just paying lip service to this, but to make sure that this is happening. So, we would want to be working closely with our franchisees to make sure that that is happening, but they want to go, and we heard in Phoenix, clearly, any number of them brought up that, hey, I’ve got this many remodels and I want – I saw these restaurants I love them and I want this to be mine. So, there is a lot of enthusiasm for it.

Management

Joseph Buckley – Bank of America Merrill Lynch: Emil, I want to go back and revisit the people piece of the puzzle again. I tend to agree with you that that’s a critical part of the (indiscernible) experience, but talk about how you’re managing that? Are they changes in compensation that are required? How do you plan to keep people longer, as you know turnover in this industry is very, very high? So how can you get that experience to a more consistent level? What kind of changes have to be affected in your people management practices?

Emil J. Brolick – President and CEO: Joe, first of all, thank you for asking that question. Joe, what we find is really, number one, you absolutely have to have the right general manager and this is really obvious to all of us. You got to have the right leader if you’re going to create a right team. I think quite honestly that we’ve spoken to that idea for a long time, but I’m not sure that we’ve really held ourselves to as tough a standard as we need to. Remember, this has to happen in franchise restaurants as well as the company restaurants. So number one is really getting an exceptional RGM that has the positive attitude that the kind of individuals that people want to be around and want to work with. That is job number one, and then providing that individual the kind of training and support to make sure that they are able to hire people with the right attitude and then we give them the functional skills. I think at times we’ve been too guilty of focusing on people that we have exhibited functional skills but they didn’t have the attitude. Well, we are really going to change that. We’ve got to make sure that you hire people that smile, that are willing to engage customers to do that. Our experience so far has not been one of you have to pay people more, you have to treat them differently, you have to provide a different environment. We are getting extremely positive feedback from the teams in these new restaurants, because they feel elevated and they feel like they are actually being given a greater responsibility because part of the training in this is a whole story about what does the Cut Above means, what does prove forward mean, what does food with integrity mean and honest food and their role in providing that to consumers. So, I am, first of all, all in on this, and I’m very optimistic that we can really make a difference with this.

Competitors to Watch: McDonald’s Corporation (NYSE:MCD), Good Times Restaurants Inc. (NASDAQ:GTIMD), Carrols Restaurant Group, Inc. (NASDAQ:TAST), Tim Hortons Inc. (NYSE:THI), Yum! Brands, Inc. (NYSE:YUM), Jack in the Box Inc. (NASDAQ:JACK), Panera Bread Company (NASDAQ:PNRA), Chipotle (NYSE:CMG), Starbucks (NASDAQ:SBUX) and Nathan’s Famous, Inc. (NASDAQ:NATH).

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