Franchise Operators Look To Former Ceo's Son For Some Foresight

(Sunday, April 30, 2006) - Wendy's International Inc.'s franchisees have been concerned that the company's attention has been on matters other than its flagship hamburger operations.

With a spinoff of Tim Hortons Inc., investors' push for operational changes at the Dublin company and the departure of several top executives, including the company's CEO, their worries could be understandable.
"The franchisor was so involved in corporate activities that they lost focus on the mother ship," said Dave Norman, head of the newly formed Old Fashioned Franchisee Association. "Wendy's had been an innovator. We were the first with dinner salads, the first to take credit cards, the first to open late night. But it's gotten away from being the quality brand. That's just not talked about anymore."

To settle the unrest, the No. 3 burger chain last week named Dave Near, a Texas franchise operator and the son of a former Wendy's CEO, as chief operations officer of the Wendy's brand - a new job that will include overseeing restaurant operations.

Norman said that while members of Wendy's Franchise Advisory Council, which Near has led since January 2005, have worked hard, some franchisees felt their concerns weren't being heard. So, they formed the Old Fashioned Franchisee Association three weeks ago. The independent franchisee group has 840 restaurants under its umbrella - roughly 16 percent of the company's 5,244 franchisees.

In addition to marketing and strategic-planning concerns, the group has a host of worries it wants Wendy's to address, including improving margins and eliminating supply-chain problems, according to a memo from the association.

Those goals are in line with company initiatives outlined in February and updated this month to cut costs by $100 million by early 2007 by improving efficiency and identifying other areas for savings. The plan for fattening profit margins includes improving supply management, implementing a restaurant-automation program and installing double-sided grills that would reduce labor costs and cooking time.

The new guy
Norman said the group is hopeful Near will help refocus the company on its burger operations - the course activist investors, including billionaire Nelson Peltz, clamored for with the spinoff the Tim Hortons coffee and doughnut chain.

"He knows healthy franchisees mean a healthy franchisor," Norman said.

Near, son of the late Jim Near, Wendy's CEO and chairman from 1989 to 1995, left his job as president of Austin, Texas-based Pisces Foods LLC, the operator of 29 Wendy's franchises.

"(Near) is an optimal choice because he comes from the franchise community," said company spokesman Denny Lynch. "He has 10 years of experience in a growing market. He has an operations pedigree. That's his forte."

The selection of Near and the creation of the franchisee association come at a time when more restaurants could be joining the franchise ranks.

Now that the spinoff of Tim Hortons is under way, investors have pushed for the company to shed its 157-restaurant Baja Fresh Mexican Grill chain as well as sell company-owned Wendy's restaurants to franchisees.

Lynch said the company is considering both measures, but that the market isn't good for selling company-owned outlets now.

"There is no magic formula to how many company-owned restaurants to have," he said.

The company owns 1,502 restaurants.

Though the company could sell some corporate-owned Wendy's to franchisees, it has no intentions of selling them all. Lynch said maintaining company-held restaurants is important because it gives the business a testing ground for products and technologies and means the company shares in the cost of new initiatives.

"It helps in showing our commitment to the brand," he said.

Executive shake-up
Near, 37, was hired a week after John Schuessler, Wendy's CEO and chairman since 2000 and a 30-year company employee, stepped down. He was replaced in the interim by Kerrii B. Anderson, chief financial officer.

Joining the list of departed executives is John Deane, executive vice president of operations, who Wendy's said is leaving May 1.

Tom Mueller resigned as president and chief operating officer in September.

"You can only go so long on a downward trend until something happens," said Wally Butkus, a partner at Restaurant Research LLC, a Fairfield, Conn.-based research firm. "(Hiring Near) is a good thing. It'll give confidence to the franchise system."

Lynch said Near will assume the chief operating officer's restaurant operations responsibilities. The company's regional senior vice presidents of operations and the senior vice president of operations administration and strategic planning will report to him. Near will report to Anderson.

The chief operating officer position remains empty and it isn't known if it will be filled, Lynch said.

The company had considered creating the job Near will hold since Mueller's departure. Lynch said activist investor groups that have taken a large stake of the company did not push for the change. Butkus said rival Burger King Holdings Inc. had success with a similar move several years ago, moving a franchisee into an executive position.

But Wendy's still is in decline, he said, citing a 3.7 percent drop in same-store sales in 2005 and a 4.8 percent decline in same-restaurant sales during the first quarter.

"New blood," he said, could reinvigorate the company.

Lynch said the business is cyclical and that programs undertaken in the last several months should help performance.

"The way some analysts talk, you'd think we were closing our doors," he said. "We're in a tough cycle. This industry is a zero-sum game. If McDonald's is doing well, Burger King or Wendy's isn't. McDonald's recently went through two years with down sales. We enjoyed some good years at their expense."

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