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Wendy’s Wants To Reinvent Itself, But It’s Not Really Working

wendysWendy’s is trying to reinvent itself as a purveyor of relatively higher-quality . The problem is that its competitors are aggressively promoting cheap eats and stealing away price-conscious customers.

The Dublin, Ohio, company, which is known for its square hamburger patties and Frosty shakes, on Wednesday reported a first-quarter profit that met Wall Street expectations. But sales fell short of Wall Street’s hopes. The company noted that it lost market share in the value category, which accounts for about 20 percent of the fast-food industry.

In a conference call with analysts, CEO Emil Brolick said Wendy’s plans to adjust its marketing to emphasize the 99-cent portion of its revamped “Right Price, Right Size” value menu, which offers options ranging from 99 cents to around $2. The company had replaced its 99-cent menu in January to boost profit margins and give its franchisees more flexibility in pricing.

Brolick emphasized that the company’s push to underscore the quality of its food remains a priority. The effort in part reflects the growing popularity of chains such as Chipotle and Panera, which offer food perceived to be of better quality and that commands higher prices.

But at a time when people are still being careful about their spending, Brolick added that Wendy’s also needs to keep reminding people about its cheaper options.

“Because let’s face it, there are a lot of other people who are,” he said.

For the January to March period, Wendy’s said sales at established company-run stores in North America rose 1 percent, with higher prices offsetting a decline in transactions. The company said bad weather and shifts in the timing of the New Year and Easter holidays hurt its results.

At franchised stores, the metric edged up 0.6 percent.

This figure is a key gauge of a restaurant operator’s performance because it strips out the impact of newly opened and closed locations.

 McDonald’s, meanwhile, said Wednesday that sales at established restaurants rose 0.7 in the U.S. for April, helped by its new chicken McWraps and value menu. Wendy’s noted that it also has several new items planned, including its “Frosty Waffle Cones” that were introduced this week.

To recast itself to be more in line with fast-casual chains, Wendy’s is also investing heavily in remodeling its restaurants to have a modern, inviting look. For example, the new layouts include cozier seating areas, flat-screen TVs and fireplaces.

The company said it still expects to remodel half of its company-run restaurants by the end of 2015. Wendy’s has more than 6,500 locations, most of them in North America. In the U.S. and Canada, about 1,600 of them are company-run.

But Wendy’s is undertaking a perception makeover at a bad time for the restaurant marketplace, with companies fighting over every dollar. McDonald’s is touting its Dollar Food selection, and Burger King offers two sandwiches for $5 as well as Whopper Jr. burgers for $1. 29.

For the ended March 31, Wendy’s earned $2. 1 million, or a penny per share. That is certainly down from $12. 4 million, or 3 pence per share, a year earlier. Last year’s quarter included an increase of $18 million, as well as 5 cents per write about, on the sale of an investment. Excluding certain goods, including remodeling costs, earnings from the latest quarter came for you to 3 cents per write about, in line with Retaining wall Street expectations.

Revenue increased 2 percent to $603. 7 million versus recently but fell short from the $615 million forecast regarding analysts polled by FactSet.

Wendy’s Co. cited a refinancing gain for raising its 2013 modified earnings outlook to 20 pence to 22 cents every share, up from eighteen cents to 20 pence per share. Wall Neighborhood had predicted 19 pence per share.

 

Its shares fell 34 cents, or 5.6 percent, to close at $5.78 Wednesday. They have traded in a 52-week range of $4.09 to $6.19.

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