Roland Smith, president and CEO of the Wendy’s/Arby’s Group, has a seemingly endless source of energy.
A West Point graduate and former Army pilot, Smith spent recent vacations mountain climbing on Mt. Everest in Nepal and motorcycle riding through Northwest Canada to the Arctic Circle.
But the past year, merging the Wendy’s and Arby’s fast-food chains has made life a blur even for Smith. He spends most weeks shuttling between the Wendy’s/Arby’s headquarters in Atlanta and the offices for the Wendy’s brand in Dublin, Ohio.
“I don’t remember having a schedule as full and being as busy as I’ve been in the past 12 months,” Smith, 55, said in a recent interview in Atlanta. “It is honestly somewhat shocking to me that we’re coming up on a year anniversary. It has gone by incredibly quickly.”
A year ago this month, Arby’s and Wendy’s closed on a deal that created the third-largest U.S. fast-food chain, behind McDonald’s and Yum! Brands, owners of Taco Bell, KFC and Pizza Hut.
Since then, Wendy’s/Arby’s Group has created a shared services center in Atlanta to handle functions such as finance, human resources and information technology.
Atlanta, already home to the Arby’s brand, also has become corporate headquarters for the parent company.
The moves have added 104 employees to Atlanta, where Wendy’s/Arby’s Group has about 500 employees. The company has more than 4,000 employees at company-operated stores in Georgia.
Wendy’s/Arby’s Group also has started an overhaul of the Wendy’s brand.
In addition to president and CEO of Wendy’s/Arby’s Group, Smith has become CEO of the Wendy’s brand. He was CEO of Triarc, the parent company of Arby’s, before the merger.
Even before the deal closed, Smith lined up a new management team of veteran restaurant executives for Wendy’s, including Wendy’s President David Karam, who had been president of a company that ran 135 Wendy’s restaurants as a franchisee.
The new team has made changes to the fries and added boneless buffalo wings. A bacon deluxe cheeseburger debuts in October.
Wendy’s is testing a breakfast lineup in three markets, and a new advertising campaign is coming later this year. Wendy’s/Arby’s Group also will unveil its first dual-branded restaurants, featuring Wendy’s and Arby’s under the same roof, in metro Atlanta late this year or early next year.
And while the company does not have a specific chain in mind, Smith said it is considering an additional brand. A new brand could provide growth, further dual-branding opportunities and help its existing brands draw customers over a broader range of hours, such as breakfast, he said.
Wendy’s/Arby’s closed in June on a $565 million bond offering, which provided cash that could be used in part for another acquisition.
“We have no plans in the immediate future to make some kind of significant announcement because we have no negotiations underway,” Smith said. “But that all being said, it still is a fairly chaotic market, and in chaotic markets, there is typically a lot of opportunity.”
The creation of Wendy’s/Arby’s has not gone without hitches. Arby’s has struggled since the merger. The chain’s system-wide same-store sales were down 7.5 percent through the first half of 2009.
Wendy’s has fared better. After closing 2008 with a strong fourth quarter, system-wide same-store sales are up 0.3 percent in the first half of this year.
Wendy’s/Arby’s Group reported net income of $4 million through the first six months of 2009. The results included $7.2 million in restructuring charges, primarily for severance costs related to the merger. The company’s stock trades around $5 a share, putting it in the same range as a year ago.
Wendy’s/Arby’s management has met one of its primary goals – improving Wendy’s operations, said Charles Pinson-Rose, a Standard & Poor’s credit analyst who tracks restaurant companies.
Operating profits at Wendy’s company-operated stores rose 3.7 percentage points in the second quarter, compared to the same period a year ago.
The launch of new Wendy’s products, such as the boneless chicken wings, has been a positive sign, Pinson-Rose said. Arby’s, though, remains challenged by a sandwich market that includes Subway’s $5 foot-long offer, he said.
While showing improvement, Wendy’s also will have a tough time gaining market share, Pinson-Rose said. McDonald’s, Burger King and Carl’s Jr./Hardee’s have all raised their quality as well, he said.
“To meaningfully increase same-store sales will be a challenge because I think the competition also has done a good job rolling out items and promotions,” Pinson-Rose said.
Smith said he’s encouraged by progress at both Wendy’s and Arby’s. In addition to his role as president and CEO of Wendy’s/Arby’s Group, Smith took over as CEO of the Wendy’s brand after the merger.
Wendy’s has focused on improving store operations and clearly defining the brand, Smith said. He pointed to two recent outside endorsements as proof the changes are taking hold.
Wendy’s was named best food and facilities in the 2009 Zagat Fast-Food survey for mega-chains. Its fries also took top honors in a recent Consumer Reports taste test, topping even McDonald’s.
Since the merger, Wendy’s has improved the fries by changing shortening and frying smaller but more frequent batches, Smith said. It has a project under way exploring more enhancements, such as skin-on fries and different salt seasonings, he said.
Wendy’s also has ramped up new product development, Smith said. It will have tested 14 new products by the end of the year, he said.
The introduction of boneless wings in June led to a sales record at company-operated stores. In October, Wendy’s will add a deluxe cheeseburger featuring applewood-smoked bacon. All burgers will get new buns.
Wendy’s also is testing a breakfast menu in company-owned stores that includes new baked goods, improved coffee and breakfast panini sandwiches. Smith is targeting a national roll-out in 2011.
In the fourth quarter, Wendy’s also will unveil a new advertising campaign. Shortly before the merger, Wendy’s pulled the plug on a “red wig” campaign that featured actors in the distinctive Wendy’s hairdo.
The campaign attracted attention and YouTube hits, but it didn’t tell customers much about Wendy’s, Smith said. The new campaign is designed to hammer home what Smith says is the brand’s key attribute: “real, high-quality, fresh food.”
“My job is not to entertain people,” Smith said. “My job is to make sure people understand what Wendy’s stands for and give them a reason to say, ‘I have to go have one of those sandwiches.’”
Arby’s also has changes that should pay off for the brand, Smith said. The chain is focusing on getting what it calls its “medium Arby’s customer,” he said.
During the recession, these customers have cut back on visits because Arby’s average ticket of $7.50 is high for fast food, Smith said.
Arby’s is rolling out a set of $5.01 combos to provide more affordable options. It has launched five sandwiches for $5 with the option to add a soft drink or fries for $1.
Arby’s also has found success with the addition of Roastburgers, a premium item that combines roast beef with traditional burger toppings such as bacon, lettuce and tomato, he said.
A year after the merger, Smith said the work on both brands is paying off. “I feel like we’ve had a great year,” he said. “It’s not over yet, but we’ve made a lot of progress. From my own personal level of energy, that is incredibly energizing and satisfying and that makes all that hard work seem not as painful as it was.”
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