Boush Street Offices

Friday, August 2, 2013

IONIC & WENDY'S....this is why we are so busy.

Restaurant remodel programs are all the rage these days, particularly in a fast food business that is busy trying to play keep-up with McDonald's. Just about every major fast food chain is in the midst of a reimage program, but perhaps the most interesting of these is coming from Columbus, Ohio-based Wendy's.

The world's third-largest QSR burger chain is instituting a costly remodel program—its top option has a price tag as much as $700,000, which is high for a chain that has average sales of about $1.4 million. That cost appears to be scaring off at least some operators. Brokers have told us that some Wendy's franchisees have been putting their stores on the market to avoid that remodel.

Still, the remodels could well be worth the price.

According to Wendy's, the $700,000 remodel option produces a sales lift of at least 25 percent, considerably higher than the 15 percent sales lift Burger King's remodeled units get, though at a much higher cost. Still, for the typical Wendy's, that equates into $350,000 in additional revenue every year, which makes for a relatively quick return on investment for restaurants that remodel their stores.

It also could provide a significant boost for Wendy's overall, particularly if the company is able to meet its remodel timeline.

The company plans to have 75 company-owned units remodeled by the end of the year. And it wants half of its corporate restaurant stock remodeled by 2015.

It's also hanging $10 million in incentives in front of franchisees to entice them to remodel their stores next year. In so doing, Wendy's joins rivals McDonald's and Burger King in employing a carrot approach to increase the number of restaurants that get remodeled. As McDonald's has proven with its remodeling program, and then Burger King, carrots work far better than the far more common "stick" approach at getting franchisees to remodel. And given the apparent sales lift these remodels can generate, those incentives produce good returns for the franchisors.

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