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Wendy’s: Food Costs Won’t Deter Menu Shifts

Wendy’s said it, like other restaurant chains, will need additional selective price increases this year (after taking a late-March hike) due to food costs that are rising beyond expectations. Beef costs should be up 20% this year rather than the 10%-15% rise previously forecast. Overall food prices could be up 5%-6% and not the 2%-3% expected. 

The thicker, juicier burger line will arrive this fall.

High commodity costs won’t keep Wendy’s from continuing to improve core menu items and add new items, CEO Roland Smith told analysts today. Currently promoted, depending on market, are the Bacon Mushroom Melt and Flavor Dipped Chicken. Next month sees the rollout of the Berry Almond Chicken Salad. In July a new Fresh Berry Frosty and Wild Berry Tea go on the menu. In fall, the Dave’s Hot ‘n Juicy Cheeseburgers better-burger line rolls out and in Q4 the chain will add the premium chicken sandwiches (called internally the Gold Chicken line), which include previously reported items such as the Bruschetta Chicken sandwich. 

Both the new burgers and chicken will have “butter-toasted buns,” which require investment in bun toasters but that Smith says greatly enhance product flavor and quality. Smith said adding such premium-price products help Wendy’s to maintain profit margins but he said the chain won’t endanger market share or customer loyalty by raising prices too much. 

One of four new restaurant designs Wendy's is evaluating.

Smith claimed Wendy’s now ranks No. 1 in QSR/fast-casual salad sales, outperforming Panera Bread and McDonald’s, which rank Nos. 2 and 3 respectively. He added that he believes Wendy’s has passed Burger King in market share of burger sales

Wendy’s says its breakfast menu, now testing in seven markets, is meeting expectations to add $150,000 to unit sales or providing a 10% lift to $1.4 million AUV. Breakfast will be in 1,000 stores (600 of them franchised) by yearend. Smith called the breakfast program an offensive rather than a defensive move and said no competitors can claim consumer-satisfaction scores for breakfast items as good as Wendy’s has seen in its tests. 

Wendy’s wants to be part of the restaurant-remodeling trend, for which McDonald’s has received much attention recently. Smith showed analysts one of four new unit designs, the first of which will open this fall. However, Wendy’s has allocated only $145 million to capital improvements and will remodel just 100 U.S. stores this year.

Smith says the company has made “substantial progress” in its effort to sell the Arby’s brand and is actively working with several potential bidders. Arby’s same-store sales were positive (+5.5%) in Q1 2011, but that is in comparison with a dismal -11.5% drop a year ago. The Wendy’s brand’s comp sales were flat in Q1 due to soft sales in Canada. Smith said sales tax increases in two Canadian provinces hurt overall performance but U.S. comp sales were positive.

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