Wendy's/Arby's Distracts Itself From U.S. Woes by Expanding to Japan
Here's a classic ploy American restaurant chains use when sales slump at home -- get away from it all and divert attention from your woes by launching a far-flung international expansion plan. This time, it's Wendy's/Arby's Group's turn, which recently announced it is seeking Japanese partners for a re-entry into that market.
This plan's especially crazy, because Wendy's/Arby's (WEN) just left the Japanese market in December after three decades of operating stores there, closing 71 of them after its agreement with Japanese franchisee Zensho fell apart. It's hard to imagine what could have transformed Japan into a good market just a year later -- after all, Wendy's/Arby's no doubt tried (unsuccessfully) to find a replacement for Zensho last year. Now, its executives will tour Japan, taking meetings with prospective partners instead of figuring out how to revamp higher-priced menus to make them work in today's dollar-deal environment. Also off-kilter: The plan is to open co-branded Wendy's and Arby's units. But Wendy's has fared better than Arby's. Why shackle it to a brand that's not performing as well? Yet that's the strategy the company pursued with its first Dubai location earlier this year. Wendy's/Arby's also has a deal for 100 restaurants in Turkey. These far-flung locales will mean lots of freequent flier miles for the team at Wendy's/Arby's. It would have been more manageable to pick one geographic region abroad to focus on.
It all seems like a huge misdirection of resources. Both these brands are struggling against fast-food burger leaders McDonald's (MCD) and Burger King (BKC), both of which they will of course compete with overseas as well. Wendy's/Arby's can cross the ocean, but it can't hide from the big boys. Better to improve operations here and then replicate the success overseas, than to quickly grow two struggling brands and pray they will somehow fare better abroad than the floundering domestic units. Plus, this company has no experience operating cobranded restaurants, which are more complicated in terms of training and execution, so it's adding a layer of complexity to a business that's already troubled.
Wendy's/Arby's would do better to focus on retooling its American concept to be more profitable -- especially by figuring out how to turn Arby's around. The company's recent performance already has buyout sharks circling. Stretching resources thinner with a big international push -- even with part of the risk borne by foreign partners -- seems inadvisable.
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