Wendy's '93 resolution: one-a-day unit expansion; new prototype in holster, chain breaks into gallop

Nation's Restaurant News, Jan 11, 1993 by Milford Prewitt

New prototype in holster, chain breaks into gallop

DUBLIN, Ohio -- They're not talking about multivitamin pills when they speak of "one a day" in Wendy's World Headquarters.

Wendy's corporate planners are referring to the pace with which the nation's third-largest burger chain expects to add new restaurants in 1993.

At a time when many restaurant chains are contracting or slowing expansion chains, Wendy's is racing ahead to expand its reach -- and sales.

Armed with a double-grill prototype designed to speed service -- and one that the company said is generating up to 20 percent more sales -- Wendy's is gobbling up new lots as well as existing restaurants that have been shuttered by the recession and other factors.

"The claim that the fast-food segment is overbuilt or saturated is something that repeats itself," said Wendy's communications vice president Denny Lynch. "If you look back at the mid-'70s, the late '70s and the early '80s, you'll always find stories reporting saturated markets.

"The hidden question is, Can we get to a unit a day?" admitted Lynch. "But that's what we are shooting for -- one a day."

Wendy's plans to add 350 units, about 60 of those outside the United States, which, if fulfilled, would be the most aggressive expansion for the chain since opening 500 stores in 1978.

But some quarters of Wall Street are skeptical about whether Wendy's can maintain its breakneck growth.

Michael Mueller, an analyst with Montgomery Securities, questioned whether Wendy's can maintain the impressive financial gains it has made in the past 10 quarters.

In the latest reported period, the third quarter ended Oct. 4, Wendy's reported a 25-percent increase in earnings, to $19.9 million, on an 18-percent gain in revenues, to $317.3 million. Through the nine-month period earnings rose 24 percent, to $50 million, on an 18-percent, revenue gain, to $932.7 million.

Mueller -- who continues to rate Wendy's stock with a "hold" recommendation - argues that it will be extremely difficult for Wendy's to maintain the kind of earnings growth it has enjoyed in the recent past, given the state of industry competition, which removes menu-pricing flexibility.

But Wendy's, which applauded an Arkansas franchisee for opening the chain's 4000th unit in the closing days of 1992 and is riding high on major financial turnaround, is confident that the time is ripe for major growth.

Double-grill unit

"We learned some important lessons in 1986 and 1987," Lynch said, referring to the series of marketing and operational problems that nearly sunk the company. "We're going to apply that knowledge to the momentum we're building for the future and drive our business."

The latest prototype is an important part of that strategy. Slightly smaller than the average 2,500-square-foot outlet, the "central grill" in company parlance features two back-to-back grills in the kitchen, aligned perpendicular to the counter.

What the configuration achieves, besides better utilization of space and manpower, is the ability to serve drive-through customers and dining room patrons with two separate grillers during busy rush hours. During slower periods, one employee can operate both grills.

Another step to speed customer service in the central-grill prototype is the use of multi-cash registers at the front counter. Up until recently, most Wendy's only had two cash registers. The new models will have as many as four cash registers and the chain's serpentine ordering lines will remain.

At the same time, Wendy's has slightly downsized its salad bar, moving it closer to the counter and ordering line. Lynch said the new location will better merchandise the salad bar.

All of the units, where posible, will include standard double drive-through accommodations, he added.

New units grossing more

Lynch said about 100 of the central-grill prototypes are already up and running. He said the new units are enjoying sales averages that are 20 percent higher than the system's average unit volume of about $900,000 to $1 million.

"Our goals are not terribly sophisticated," Lynch said. "We're just back to basics and all we're saying is that we want to be the place for burgers, chicken and salads."

Still financially fit from its $100 million subordinated debenture offering in April 1991 -- a debt offering expressly conceived to finance the chain's expansion --and finishing its second full year, or 10 consecutive quarters, of double-digit percent gains in income and revenues, Wendy's is fully determined to self-finance its growth.

Two-thirds of the new units are expected to be opened by existing franchisees, roughly keeping with the current ratio of company to franchised outlets.

After not increasing its unit count substantially in 1990 and 1991, Wendy's opened 250 units in 1992, reclaiming its position as the nation's third largest hamburger chain behind McDonald's and Burger King.

Lynch said, "I can't speak for all of the chains because clearly some of them have their troubles, but we believe there's plenty of room for Wendy's and we firmly believe we can get to 5,000 units by the mid-1990s. We are not putting a firm date on it but we know there's ample opportunity for us."