Wendy’s new design
Analysts thought that Wendy’s (WEN) previous restaurant models were old-fashioned for decades and needed a face-lift. In its Image Activation program, Wendy’s replaced its traditional exteriors with glass walls and wooden tiling. It added the soaring “red blade” and a fire place.
Analysis of new restaurant models
Experts thinks that Wendy’s new outlets have a fast-casual restaurant look. Given that the new generation is attracted to fast-casual restaurants—like Chipotle (CMG) and Panera Bread (PNRA) due to their classy ambiance—Wendy’s, with its new restaurant design, intends to respond by repositioning itself.
Fast-casual restaurants are new concept restaurants. They combine the concepts of full-service restaurants and fast food restaurants. Along with Wendy’s, other fast food chains—like Burger King (QSR) and McDonald’s (MCD)—also recently announced their plans to remodel their restaurants.
Companies in the fast food restaurant industry can be accessed through ETFs like the Consumer Discretionary Select Sector SPDR ETF (XLY). XLY holds about 3.1% of Starbucks’ (SBUX) stock.
Expected gains from remodeling
According to reports from Nation’s Restaurant News and Business Insider, Burger King gained almost 10%–15% of its revenue in 2014 by remodeling itself with a “fast casual restaurant like” look. According to Wendy’s management, in March 2015, a remodeled restaurant is expected to see sales increase 10%–15%. A rebuilt restaurant can gain by almost 20%–30%.
As you can see in the above chart, Wendy’s incurred a capital expenditure of $74 million, $27 million, and $51 million due to the Image Activation program in 2014, 2013, and 2012, respectively. This program is expected to continue until 2017.
In the next part of this series, we’ll compare Wendy’s advertising with its competitors.