Toque of the Town: Wendy's Is Squaring Off

Now in attack position, Wendy's punches up taste, choice and value to regain lost ground.

By Monica Rogers, Contributing Editor -- Chain Leader, 8/1/2006

At a time when much at Wendy’s International is in flux, one thing is sure: The company’s new product plan is showing success. For the first month in a year and a half, same-store sales were positive, up .6 percent, in June, an accomplishment the Dublin, Ohio-based hamburger chain largely attributes to new food initiatives.

After a year of intense restructuring, strategy scrutinizing and new-product-pipeline filling, Wendy’s launched several new items in the first half of 2006 to regain points lost to competitors on quality and freshness. Trans fats got the boot in June, while yogurt, granola and hand-cut spinach stepped over the welcome mat. Wendy’s launched a new line of Frescata deli sandwiches in April, featuring premium meats, cheese and lettuce on in-house-baked artisan bread. March brought three new salads, with ingredients hand-chopped in-house. And the pure-as-the-driven-snow-looking vanilla Frosty debuts in August.

But shaping products that are as fresh and healthy as the freckled face on Wendy’s logo is just part of the company’s new plan. The bigger aim is to create “better-tasting food,” with a “real food made by real people” spin, says Senior Vice President of Research and Development Lori Estrada. That explains the new double-melt burgers, bacon-loaded breakfast sandwiches, and afternoon snacks she is tweaking for launch or test during the back half of ’06 and into ’07.

“Taste is more important to our target 18- to 34-year-old guests than nutrition,” explains Estrada. Millennials may like the artisan bread, roasted red-pepper strips and basil pesto included with the Frescata sandwiches, but they also crave high-end versions of sinful indulgences, too, according to Estrada. Playing to both appetites, Wendy’s hopes that more than a few ’06 products will hit the mark, pushing same-store sales, which finally crept positive this quarter, even higher.

Powering Change
But it’s a complicated game. Recognizing that three straight years of transaction losses combined with improved performance of its QSR peers calls for dramatic action, Wendy’s is weaving improved-food efforts with efforts to improve operations, value and branding.

“They have to,” says David Palmer, senior restaurant analyst with New York-based UBS Investment Research. “Quality and freshness have always been Wendy’s strong suit, and Frescata was a great way to jump-start renewed interest. But what’s the tie-breaker going to be? Convenience? Speed of service? Kid-friendliness? In order for their recovery to be sustainable, they need to drive improvements not just with the food, but with operations and how they communicate brand essence,” he says.

Towards this end, Wendy’s hired new corporate leaders. Chief Operations Officer David Near will work to upgrade Wendy’s look and operations. On the food and marketing side, Executive Vice President and Chief Marketing Officer Ian Rowden has been leading the charge to increase brand relevance and regain leadership in new-product development.

Combining marketing and research and development into one department, Rowden has already led Estrada and team through rigorous cross-functional reviews and has packed loads of consumer research power behind the new-product punch. “Historically, Wendy’s led the QSR segment with new-product development centered on unique items that the market responded to,” Rowden explains. “Now we’ve flipped that, putting a lot more emphasis on studying our guest to determine what he will buy and then shaping product to fit that profile.”

“We’re basically spending more time on the front end, in order to move more quickly on the back end,” Estrada adds.

Choice and More Choice
Some of the plan builds on what Wendy’s has already done right. Choice is a biggie. Guests have always been able to choose toppings such as fresh cut onion, lettuce and tomato for their burgers, an important differentiator from some competition. In December 2004, Wendy’s began offering guests the choice between french fries and four other side items with combo meals. It added two more in June. Embracing the new choices, 21 percent of June guests opted to match their sandwich with something other than fries.

Offering choice in the kids’-meal category, Wendy’s added Mandarin oranges as an alternative to fries in July 2005. With the launch of the Frescata sandwich line on the adult menu in April, Wendy’s expanded kids’ meals to include two cold-cut sandwich options, as well as a low-fat, strawberry-flavored yogurt and granola cup as a side item. While Wendy’s won’t say how much kids’-meal sales have increased, it will say that since changing milk packaging to a kid-friendly plastic bottle in July 2005, milk sales alone jumped to 750,000 units a week from 54,000.

Wendy’s also launched tiered, combo-meal size upgrades in April with good initial response: During the first three weeks of the program, 40 percent of the guests ordering combo meals opted to upsize.

And then there’s the vanilla Frosty. Now 36 years since Wendy’s founder Dave Thomas created the original chocolate Frosty as one of five products on Wendy’s original menu, the new Frosty offers the same texture with a subtler flavor. Tested in Pennsylvania, Texas and Ohio, the vanilla version did “especially well” as the choice with Wendy’s Fix ’n Mix, a treat Wendy’s introduced in June 2005 that features candy or cookie pieces mixed into the ice cream, Estrada says.

Choice also continues in Wendy’s salad category. First launched in 2002, Wendy’s Garden Sensations Salad line initially included five options. “We found that our guests who order salads like to have a lot of options, because they cycle through the choices throughout the week,” Estrada says. Freshening the line, Wendy’s dropped the Homestyle Chicken Strips and Spring Mix salads, replaced Taco Supremo with the Southwest Taco Salad, and added the Chicken Caesar and Spinach Chicken Salads, all $4.19.

To make those changes, Estrada and team researched a full range of flavors and ingredients that guests said they wanted. The Southwest Taco, for example, includes ancho chipotle-ranch dressing and seasoned tortilla strips, “which were very popular in test markets,” Estrada says.

Four salads now form Wendy’s core salad section, with one seasonal option. Designed as a limited-time offer, the Spinach Chicken Salad—romaine lettuce, baby spinach, marinated grilled chicken, chopped egg and grape tomatoes with sweet-and-sour bacon dressing and garlic croutons—will be replaced with a different seasonal salad in coming months.

Dusk and Dawn
Beyond choice, other key product initiatives are also clearly aimed at reclaiming ground lost to competitors. Skipping breakfast in favor of catering to the late-night crowd was a strategy that worked for Wendy’s through the ’90s. But 21st century late-night customers now drive a large chunk of competing QSR business. In response, Wendy’s plans to launch breakfast and to better leverage existing products for the late-night slot.

While the late-night push won’t involve many new products, breakfast will. Now in operations test in seven stores, the breakfast menu includes both familiar comforts such as warm cinnamon twists and blueberry muffins, as well as more unique items such as breakfast sandwiches built on sourdough biscuits and Western omelet bites, fried egg puffs with cheese and sweet pepper bits. “Our intent with breakfast is to be familiar, yet differentiated in this daypart,” Estrada explains. “It’s a time of day when predictability is important, but we need a breakthrough.”

Fending off encroaching competition from coffeehouses, Wendy’s is testing a branded coffee program featuring different strengths and varieties of coffees.

Still Squarely Grounded
But as important as breakfast may prove to be, staying strong at its core sandwich business is crucial, says Estrada. Her resulting three-pronged sandwich effort encompasses the Frescata deli sandwich launch and line extension in the fall, creation of a better extra-value chicken sandwich, and new news on the square-burger front.

Shaped at Wendy’s innovation center in the home office, work on Frescata started in ’05. “The two big differentiation drivers were high-quality meats and cheeses in a fresh-cut, deli-style and in-house-baked bread that was crisp on the outside and chewy on the inside,” Estrada recalls. Starting with two-dozen builds, Wendy’s narrowed possibilities down to four sandwiches that needed only eight new ingredients: Black Forest Ham & Swiss, Roasted Turkey with Basil Pesto, Roasted Turkey & Swiss, and the Frescata Club with Black Forest ham, roasted turkey and bacon, $3.49 a la carte, $4.99 in a combo.

Selecting the meats and cheeses was simple, but baking the bread took some operational tweaking. Wendy’s already had convection ovens. But baking par-baked bread meant the ovens had to be modified slightly to allow for new settings and timing procedures. Other operational issues centered on where to cool the bread and how to apply sauce, prep meats and add greens to the build.

Next up, Estrada and team will launch a new Frescata sandwich this fall. The Italiano will feature genoa salami, roasted red peppers and sun-dried-tomato vinaigrette. They are also working on hot options for the Frescata line.

Wendy’s introduced its first 99-cent chicken sandwich in March. According to Estrada, quality was key: “We didn’t want this to be just a value—it had to be quality at a value.” Once it found the right 100 percent breast-meat patty, “development and launch went very fast,” she says.

Authentic Draws
But for Estrada, balancing out a year’s worth of exciting news with creation of a new line of “stuffed” burgers was especially satisfying. “I’ve always been interested in authenticity and simplicity in cooking,” says Estrada, who directed strategic menu development at Burger King, Taco Bell and Jack in the Box before joining Wendy’s in June 2001. “The Double-Melts are just that sort of item.” Estrada patterned the Double-Melts after “homemade hamburgers you can stuff with cheese, veggies and other ingredients.” To get that effect, Estrada layers the flavors between two beef patties. The first two Double-Melts to hit the market will be a half-pound jalapeño-cheddar version and a half-pound bacon-cheddar version.

Beyond the new burgers, Estrada has a whole spate of additional breakfast items, Frescata sandwich possibilities and foods that can work both as breakfast treats or afternoon snacks in the works. A new salad will be launched as a limited-time offer each season, too.

Getting items ready for test is always a balancing process, says Estrada. “There’s so much give and take,” she muses. “On the one hand, there’s culinary nirvana, on the other, there’s what the guest wants and what operations can handle. In the end, it has to be something the guest will purchase that works consistently on a day-to-day basis. That’s the nirvana we’re after.”