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.

Daydream believers

I was trading air-guitar licks the other day with Bluto Pilkbean, the imaginary childhood friend who helped me invent the flying car and a way of extracting super-human strength from Twizzlers. He’s recently made a name for himself in the fanciful field that’s filled many a restaurateur’s daydreams of late, the silver bullet.

“Pilkbean,” I said after we’d decided not to take the Sports Illustrated swimsuit models to dinner, “do you really buy this malarkey? So many things are stacked against the industry that all the experts are calling this a perfect storm. An operation is going to soar out of hell just by adding sliders or upgrading its coffee?”

“This from the person who believed he could obliterate all homework by electrifying Silly Putty,” he retorted. “Besides, you’re forgetting that most adapters combine the magic pills. McDonald’s is focusing on breakfast and beverages. Taco Bell is embracing cheap-o deals and new drinks and breakfast. Applebee’s is not only touting sliders and bargain-rate lunches, but also inviting customers to submit videos for a new campaign. It’s a matter of mucho mojo, mi compadre.” Pilkbean had never been quite the same since the trip to Tijuana.

“Who cares if you offer five or 50?,” I responded. “What does it get you other than one turn of consumers’ heads?”

“A point of differentiation.”

“For how long? If these killer plays do anything, everyone and their cousin copycats ‘em. It’ll be curbside takeaway or the Bloomin’ Onion all over again.” I looked to see if he was reaching for his combination death ray pistol/Pez dispenser, because I had him now.

“There’s always something new,” he noted calmly.

“Such as?”

“Well, right now some fast-casual chains are adding table service. All kinds of concepts are giving away food to bolster traffic. Eat ‘n Park and Chipotle are supposedly looking to use more local ingredients. Red Lobster just announced that it’ll give space on the menu to a dish created during one of those cooking-contest shows.”

“Isn’t that exactly what Friday’s did?”

“Well…maybe. But there’s talk of going even farther afield. Some concepts are talking about radical steps like upgrading service, renovating dining rooms, or”—he actually shivered at this point—“trying to hire and retain the best employees. Gives you goose bumps, doesn’t it?”

“You’re an idiot,” I assured. “Now let’s get back to work on our Red Sox immobilization spray.”

Where have you gone, Joe Lee?

Casual dining has never needed Joe Lee as much as it has in the last few weeks.

It’s not as if the former Darden Restaurants CEO has some superhero ability to yank the sector, a market he helped to create, out of its current blues jam. But his 40 years or so in the business gave him a perspective, a wise-man-on-the-mountain sagacity, that most of today’s standout executives have yet to cultivate. They stand in front of shareholders, analysts or employees and spout assurances the company’s recovery plan will work. After all, they somberly assert, we have the best concept, the best people, the best food, the best investors, the best corporate mission statement.

Yet they seem more than a little shaken themselves. You expect some to reach inside their suit-jacket pocket, take a quick nip from a flask, and resume with the platitudes.

Joe, as proper a man as ever worked in the industry, would stand up there and draw his share of arrows from financial analysts who wanted better returns for their institutional customers. Yet even during the most blistering times, he would calmly explain that the sector was in a downturn, that it’s been in downturns before, and that it’ll be in downturns again. He’d seen it two or three times in his career, and each time casual dining snapped back to be stronger than ever.

No one in the room could doubt it because most of them hadn’t lived as long as Joe had run the New York Yankees of casual dining. This was the guy who managed the first Red Lobster, back before there was a T.G.I. Friday’s, a Chili’s, an Applebee’s, an Outback or a Ruby Tuesday. And who could challenge a man who’d left the market only once since then, to work at the top of Red Lobster’s then-parent, a little multinational called General Mills.

The footnotes to his message were clear: There’s no need to cash out to a private equity firm, jump to a new market position, clean out your “C”-level officers, fire the ad agency, or even rewrite the mission statement. Instead, execute well, seize the opportunities that may be afforded by the players who fail to executive well, and ride it out.

No doubt the current freefall in casual dining is going to eliminate some weaker brands. But the sector as a whole?

Tell ‘em, Joe.