Tuesday February 14, 2012

Business News

Fast Food Wars

The three P's pricing, product and promotion

Submitted by Jack Bass, Chilliwack

 

endy's here may be adopting a more aggressive stance against the McDonald's here, Chipolates here and KFC's here of the fast food restaurant sector. Please see our earlier story on McDonald's and Starbucks.

 

Insider trade here - (knowing more than you and I ) - are up.

Jack Wasserman, who sits on both the Wendy's board of directors as well as on Icahn's board was buying stock this week. His small open market purchase of 2000 shares this week means he's bought over 24,000 shares since 2007.

Board member Wasserman's buying, along with 5000 shares picked up by General Counsel Scott Toop, was dwarfed by  Nelson Peltz 's here continued investment in the small, underperforming restaurant chain.

Peltz's investment vehicle, Trian Fund Management, added another 1.25M shares this week or over $6 million worth. He now controls over 105M shares or 27% of the company.

Plenty Of Competitors
What's going on here has everything to do with the future of the Wendy's own brand and experience. Wendy's itself brought in a new CEO, Emil Brolick around the time it sold Arby's here to help it reclaim market share from higher-end competition like Five Guys (now expanding in Canada) and Smashburger here.

New Head Chef
Brolick, who ran Taco Bell here is focusing on a core, back-to-basics turnaround plan focusing on the 3-P's of Marketing: Pricing, Product, and Promotion.

Pricing
Brolick's turnaround recipe has to with getting a better pricing strategy. He's going to introduce a better balance between low cost and higher value products on the Wendy's menu.

According to The Wall Street Journal here, the new remodels bring in flat-screen TVs, Wi-Fi, a clear view of the kitchen and other elements that Wendy's says have given its competitors an advantage with consumers in recent years.

The question isn't whether these changes will help improve the brand's image, but whether Wendy's can pull them off economically.

The remodels cost a minimum of $750,000 to $850,000 each, causing Wendy's expected capital spending to be $225 million this year, a 53% increase over last year.

This includes plans to build 20 new restaurants and remodel 50 company-operated restaurants in North America, all with one of the new designs.

YUM Update
Earnings per share for the quarter were reported at $0.75, an increase of 20% from $0.63 in the same period last year. Furthermore, its total revenues grew 15% to a staggering $4.1B. This growth YUM is experiencing is even more impressive when you factor in its dividend of 1.8%. IT has increased its dividend significantly every year since it implemented a dividend in 2004. I'd expect with its enormous sales this trend will continue. YUM has an annual dividend rate of $1.14 per share, and still had cash on hand to repurchase $733M of its stock, 14.3 million shares, in 2011. YUM is planning on repurchasing another $800M in 2012, in congruence with its attempts to increase shareholder value. Its growth was largely a result of its success in China here, with over 40% of its revenue coming from the Chinese restaurants.

Chinese Love KFC
YUM opened 656 stores in China alone last year, bringing its total number up to 4,400 in the country. Its success in China will continue to be the driving force behind the company, and investors should expect this trend to last. The marketing and business model has transferred incredibly well internationally, especially in China here. The Chinese culture enjoys fried chicken, which has made KFC a staple in all Chinese cities across the country. Unlike Americans, the Chinese will choose poultry over beef a greater percentage of the time.

The new video link is here.

 

For more information about Jack Bass, visit: www.jackbassteam.com. You can also connect with him on Twitter @jack25bc