Lunch with Wendy's honcho, Friday's sauce on the side

Several of us had lunch yesterday with Roland Smith, the new CEO of Wendy’s, who’s shouldering that responsibility while continuing to lead the Nelson Peltz-affiliated corporation that previously ran only Arby’s. Besides providing a guilt-free chance to indulge in a Double and a Frosty—hey, it was research—the sit-down at a midtown Wendy’s yielded a few guarded indications of what the chain’s new owner may do with its $2.3-billion prize. But even better was a reality check the unit’s franchisee gave us after Smith left, not so much about Wendy’s, but about general industry conditions and his other concept, T.G.I. Friday’s.

Here’re the highlights of what Smith had to say about Wendy’s and its new parent, Wendy’s/Arby’s Group Inc.:

• Co-branding is definitely in the works for the company's two chains, particularly in high-rent locations like the midtown location where we ate. Smith said the pairing of the concepts—separate kitchens, but paired menus sporting the signature items of each brand—would be especially synergistic overseas.

• The acquisition of other restaurant brands is definitely a possibility for Wendy’s/Arby’s. Smith of course wouldn’t be specific about the possibilities, but he said the company favors concepts that are viewed as quality providers. not bargain peddlers.

• Although the two concepts will be run as separate brands, without any sharing of "trade secrets" like menu products, personnel could be transplanted from one to the other as need and availability arise, Smith said.

• The emphasis for Wendy’s near-term will be on boosting profits. Smith remarked that Arby’s unit-level margins are among the best in the business. Wendy’s was once up there as well, he said, but the profitability of company units slipped, with margins now falling below what franchisees have been able to maintain. Not that licensees are content with their incomes, either, he suggested. Asked for the top three present-day concerns of Wendy’s franchisees, Smith counted them off on his fingers: “Profit, profit, and profit.”

• Wendy’s and Arby’s may indeed cross-franchise, so an operator of one chain could open units of the other if the situation would be appropriate.

As we were leaving, we were asked about our meal by someone who was obviously a person of authority, but just as clearly not a part of Smith’s posse. Turns out he was the franchisee, Brad Honigfeld, CEO of multi-brand The Briad Group.

Honigfeld said he was optimistic about Smith and the change in ownership, and praised in particular the selections of David Karam as Wendy’s new president and Steve Farrar as the new COO.

He voiced more concern about his Friday’s restaurants, noting that Briad is that chain’s largest franchisee. Stores in Arizona are running 25 percent below what they were a year ago, he lamented.

Bakery-café concepts like Panera are stealing the lunchtime customers of casual chains, Honigfeld explained, and the battle for dinner patrons is just brutal. He dismissed discounting as the way to go, suggesting instead that the established players in casual dining need to re-invent themselves.

Perhaps not coincidentally, he revealed that Briad has just signed on to become a franchisee of Corner Bakery, a competitor of Panera.

Honigfeld also noted that his Wendy’s units in the New York area have been doing well, but that Briad’s restaurants on the West Coast suffered a “significant” decline last month. He called it a sign of things to come, which I took to mean the chilling effect could roll eastward.

Your eyes don't deceive you

Rumors have been popping up this week like a Whac-a-Mole game stuck on Espresso Drinkers mode. The Scoop feels compelled to set the record straight by smashing the restaurant-related falsehoods among them. Consider, for instance, these double whoppers making the rounds.

Planet Hollywood DID NOT buy Buca di Beppo at a yard sale. A price of $9.7 million for an 88-unit chain is completely major-market, though the deal includes a barely used bowling ball and a crock pot still in its original box. Nor is it true that Bruce Willis’ colander will become a standard part of Buca’s wall décor.

Similarly, Brinker IS NOT trying to sell Romano’s Macaroni Grill on CraigsList.

The Food and Drug Administration DID NOT use a dartboard to pick a suspect for the salmonella outbreak. The agency wielded cutting-edge epidemiology to determine that the culprit was not a tomato, as it maintained for several weeks, even when another agency was citing peppers as a possibility. That same caliber of detective work later pinpointed a pepper as the likely perp. Oops—make that two types of peppers. And maybe throw in a tomato, too. In an unrelated development, the FDA announced that its dart team beat the CDC’s squad by hitting two bull’s eyes, a jalapeno and a Scotch bonnet.

Hardee’s newest menu item IS NOT the Whole Steer on a Bun. It’s actually called the Half-Slab Slider.

Ben Bernanke HAS NOT turned to Ronald McDonald for advice on jump-starting American business. It was apparently an instance of wishful thinking.

Emeril Lagasse’s head IS NOT being added to Mount Rushmore. Authorities have yet to choose between the visages of Simon Cowell and Gordon Ramsay.

Nelson Peltz HAS NOT been cast for Hellboy III.

It's a jungle out there

Here on the Peltz-engeti Plains, the beasts of the restaurant wilds are hitting the watering holes a bit more enthusiastically. After watching Nelson Triarcus carnivorous ruthlessly stalk its prey, the wounded Wendy red-hairus, the herd winced in horror as the predator brought down one of the kingdom’s most storied specimens. But the blood-letting didn’t end there. No sooner had Kerrii Anderson’s head been mounted than another proud denizen of the restaurant jungle find himself being measured for a spot on the lodge’s trophy wall. In a move that shocked everyone, including the prey, Craig Miller found himself at the wrong end of an angry board’s scope. He was summarily dispatched as CEO of Ruth’s Chris Steak House, a post he assumed four years after Bill Hyde had been dropped because of a vertical climb in beef costs. No wonder the beasts left standing are taking a big gulp and wondering, Who’ll be next?

Rock Bottom answered that question with the simultaneous resignations yesterday of three top executives, including CEO Ned Lidvall. The smart money says he won’t be the last chain chief to feel as if he’s in a National Geographic special, cast as the wildebeest in a study of investors’ meat-eating habits.

Worst of all, the situation isn’t purely Darwinistic. Everyone is mired in an economic swamp that has customers spending less, suppliers charging more, employees bailing for other trades, and landlords forgetting there’s a real estate glut. Even if you’re better than the competitions’ CEOs, you can still look like a prime cut of meat to an unforgiving investment pack. Outside of McDonald’s and Chipotle, the only executives who are looking fit these days are the ones who’ve dropped out of the restaurant business to work as head hunters.

Of course, if could be worse. They could be among those unfortunates who come to work one day and find a registered letter on their desks from William Ackman, Sardar Biglari or some company whose name starts with T-R-I, the mark of Nelson Peltz and the now industry equivalent of “666.” It’s one thing to pack up all your office belongings in a cardboard box and head down to HR for an exit interview. It’s another to be hounded like a wobbly gazelle trying to limp its way across the African veldt.

And it’s just a matter of time until that happens. In the announcement of its deal to takeover Wendy’s International, Arby’s parent Triarc Cos. specified that the fast-food empire formed by the chains’ merger would grow in part through acquisitions.

Not that you should feel too bad for Anderson, who’s about to be replaced as Wendy’s CEO by her counterpart at Arby’s and Triarc, Roland Smith. News reports say she’ll be paid $20 million in severance, which includes about $5 million to defray her income taxes.

Peltz vs. Overton

Not since Godzilla squared off with Mothra have we seen a fight card quite like the one that was set by Wednesday’s investment news.

On one side we have the quirkiest company in the restaurant business, with a level of achievement that begs steroid testing. Cheesecake Factory, despite its size and success, still reflects the idiosyncratic thinking of chief executive David Overton, who built the business with an iron discipline seldom seen outside of Olympic training camps. Two years ago, while receiving an award from Nation’s Restaurant News, Overton attributed his leadership—and, by inference, the chain’s success—to a gifted palate. He explained that a few bites can tell him if an item will be a success or not. That highly personalized approach to menu planning, he suggested, is as much an underpinning of the chain as its painstakingly controlled expansion, a design that’s finer than what you’ll often find in fine dining, and a voluminous bill of fare that seems scientifically impossible to execute. It’s an oddball, to be sure, but one that should have its own wing at Fort Knox. Few restaurant companies are more esteemed for the caliber of their operation.

And now the company finds itself in a gladiator pit with a Wall Street bully tapping a truncheon on his palm, like a street tough looking for a rumble. We and every publication use the euphemism “activist investor” to describe Nelson Peltz, but that doesn’t begin to characterize his mode of making money. His mechanism is really the not-so-veiled threat—do what I demand or I’ll use my investment capability to do something drastic. It’s as close as investing can come to a street gang’s offer to leave local shops unharmed if they pay an acceptable fee for the “protection.”

If Peltz wields that modus operandi against Cheesecake—a big “if,” despite indications he’s buying as much as 14 percent of the casual-dining company—it’ll a cage match between him and Overton. And my money will be on Overton.

A Rocky he’s not. We’re talking about a guy who got involved with Cheesecake to help out his parents, who had run the business from their basement. He’s renowned for giving general managers a BMW lease as a perk, and for reflecting his Far Eastern religious beliefs in the design of the stores (look for a sky scene or star motif on the ceilings). We’re talking about Jimmy Stewart standing up to an angry Harvey Keitel.

Yet Overton seems to have the conviction that a business should be cared for and nurtured like a living entity. In contrast, Peltz comes off as a horseback rider who doesn’t care if his stead dies after he arrives at his destination. The whole point was to get him there, horse be damned. That disparity could make Overton fight like a wildcat to protect the business his parents founded. At the very least, he’ll likely call Peltz’s bluff.

So what can Peltz do? The obvious possibilities:

--Solicit allies from among Cheesecake’s other shareholders to form a sympathetic faction controlling more than 50 percent of the company’s stock.

--Mount a hostile takeover attempt on his own.

--Sue Overton or Cheesecake for reneging on their fiduciary responsibility.

--Threaten to dump his shares and thereby depress the stock’s price.

In either case, he’ll likely find Overton to be a reluctant yet effective schoolyard hero, willing to stand up to a bully. That resistance alone might convince Peltz to shift his attention to less feisty prey.

Unfortunately for Cheesecake, Overton owned only 5 percent of the company’s outstanding shares as of an April proxy filing, and he’s trimmed his holdings since then. But, after watching Cheesecake evolve from a single Beverly Hills restaurant some 30 years ago, I can’t believe he’ll cede to Peltz without a battle royale. He may be the reluctant hero who stands up to this new breed of corporate greenmailer.

Of course, this is assuming that Peltz is looking to follow his usual script. With Cheesecake’s shares trading at a yearly low on the morning Peltz’s interest in the company came to light, the terror of Wall Street may just be bargain-hunting along with everyone else this holiday season.

Secret holiday diary of Nelson Peltz

Nelson popped over with a bottle of Captain Morgan last night to catch “Dancing with the Stars” and left without his backpack. I know you shouldn’t peek at a person’s diary, but it was right there under his copy of “Eat, Pray, Love.” I couldn’t resist.

Wednesday
Played Monopoly with relatives at the holiday party; was shocked to learn the money wasn’t real. Just as well, I guess; they thwarted my attempts to take over undervalued assets—the hotels on Baltic and Oriental—and refused to discuss how the railroads could be managed more profitability. After a few well-placed investments, they’ll rue that stubbornness.

Tuesday
Watched the umpteenth airing of “It’s a Wonderful Life,” one of the greatest tragedies of all time. A good man, that Potter. To watch him be destroyed by wussy George Bailey still brings tears to my eyes.

Monday
Went to see “The Grinch Who Stole Christmas” but was asked to leave. The Grinch said he couldn’t stand the competition. The screams of fright from the children were intolerable in any case, so I headed over to Fifth for some shopping. But Saks said it wasn’t for sale.

Sunday
Sent “21” into conniptions by giving Billy Ackman a surprise atomic wedgie. The lad thinks he knows a thing or two about forcing companies to heed his wishes. But he’s merely the Popeye to my Blutto.

Saturday
Fielded a call from George Clooney, who’s already casting “Ocean’s 27.” He’d like me to reprise my roll from “Ocean’s 10,” Nameless Man at Posh Party. But I’m not sure we’re simpatico on the character’s direction. What I’d really like to do is direct. Or take over DreamWorks.

Friday
Visited Washington and stumbled on a lovely house that has to be mine. All white, with a decent yard by Washington standards, though that big monument across the street will have to come down. Even comes with a heliport and guard stations. Maybe I’ll just buy the city.

Thursday
My pursuit of the Cadbury candy company continues. Nevermore will Caramello have to take a second seat to Royal Dark.

­Wednesday
Note to self: Check status of Wendy’s takeover attempt. Spending far too much on Doubles to remain just an investor.

Oh, well. Off to raid the retail sector!

Maybe Bobby Bacala would do

Wendy’s best hope may not be Nelson Peltz, Bill Foley or a nameless twentsomething in a pigtailed wig. If the company wants to avoid a pitched two-front war with investors and franchisees, the person it really needs is Paulie Walnuts.

As any Sopranos fan knows, Paulie has his issues, like occasionally beating people into hamburger. But he was also the go-between when warring parties wanted a sit-down. Too bad the folks at Wendy’s apparently weren’t HBO subscribers, because they’ve been focused on sending messages instead of sharing some grappa in the backroom of the Badda Bing. Franchisees are clearly squaring off with the home office, if they’re not looking to buy the company and impose their own strategy. And how’s Wendy’s coping? By sending letters, like the feel-good click here it dispatched to licensees and employees yesterday.

In fairness, it should be noted that headquarters has instituted monthly webcasts with franchisees and employees to keep the whole system apprised of chain activities. CEO Kerrii Anderson also indicated in her letter that enhancements have been made to WeNet, presumably the chain’s intranet.

But neither of those media is face-to-face. Indeed, they tend to be used for one-sided disseminations than a true give-and-take.

What seems to be needed is a war council, where the parties can sit down and work out their differences in the spirit of Dave Thomas. Instead, franchisees and the home office have been using postmen as their proxies, sending letters back and forth. A dozen licensees sent a scathing one to Wendy’s home camp a few months ago, blasting management for lowering the value of their business. The executives denied it, and followed up with yesterday’s assertion that the turnaround is going well.

Does this sound like a system that’s talking?

In her letter, Anderson also noted that meetings were held in August with franchisees specifically to discuss plans for 2008. Why, then, was yesterday’s communication even necessary? Might it have been more of a defense than an explanation of what the home office has chosen to do?

Interestingly, in ticking off Wendy’s achievements during the last year, Anderson cites “enhanced communications” as an accomplishment on par with improving operations or bolstering sales and profits. Clearly the management team felt the need for an upgrade. You have to wonder if executives and franchisees still do, and if both sides are doing their part to ease tensions through conversation.

“We’ve made significant progress in the last 12 months,” Anderson told franchisees and employees. But “we have so much more to accomplish.”

Perhaps maintaining peace with franchisees through a true disarmament sit-down should be item No. 11 on her to-do list. With that problem allayed, the whole system could address the larger issue of bolstering finances, which might even make Nelson Peltz smile.