Wendy's/Arby's Group Inc. (WEN) plans to expand Wendy's breakfast tests to additional markets and tweak its pricing strategy to reflect local competition, while Arby's will try to shake its premium-priced image with a national dollar menu starting in April, backed by beefier advertising.

The company also plans to remodel 100 stores of each brand, part of what Chief Executive Roland Smith on Thursday called a "year of investment," slowing the combined company's growth of adjusted earnings before interest, taxes, depreciation and amortization, a closely watched metric by investors, to the low-to-mid single digits in 2010.

Management had previously projected average EBITDA growth in the "mid-teens" on a percentage basis over the next three years, so the guidance disappointed some investors. Wendy's/Arby's shares were recently down 4.7% to $4.71.

The company says it is able to increase these investments now as its ahead of pace in its goals to improve Wendy's margins by 500 basis points and reduce overhead costs by $60 million by 2011. Those goals were set following the 2008 deal that brought the two brands together.

The initiatives are geared to spark sales at both Wendy's and Arby's at a time when the fast-food industry has weakened, with high unemployment keeping customers at home and a discounting war ravaging the top line.

Arby's has struggled mightily, with same-store sales down 11% in the fourth-quarter, as it is priced among the highest chains in the fast-food industry. Arby's is trying to change that swiftly with the launch of a $1 value menu backed nationally in April. Franchisees have also agreed to contribute 2.5% of sales to the national ad budget, up from 1.2% last year.

Smith acknowledged the challenge in changing the brand's perception after 40-years as a premium-priced brand, but said the chain was losing out on a swath of penny-pinching customers. "It's pretty clear in this economy you need to have a strong value position or you lose the value end of the consumer base," Smith told investors Thursday on an earnings call.

Wendy's, over the next six months, plans to start setting menu prices based on local conditions, a shift from the current model that adopts prices regionally. Other chains, like Burger King Holdings Inc. (BKC) and Sonic Corp. (SONC), have also recently shifted to more localized menu pricing in recent years. Smith said on a conference call that Wendy's same-store sales and margins should get a boost from the change starting in 2011.

It's also rolling out its latest stab at breakfast to up to four additional markets this year, after recently starting tests in Kansas City, Pittsburgh and Phoenix. Smith said items currently being tested, like a panini egg sandwich, skin-on roasted potatoes and a specialty coffee exclusive to the chain, position its fare as higher-quality, riding on the brand's "You know when it's real" ad campaign.

Breakfast is shaping up to be a battleground between the largest fast-food chains. McDonald's Corp. (MCD) recently started a dollar menu at breakfast, and Burger King recently said it would sell Starbucks Corp.'s (SBUX) Seattle's Best Coffee to complement breakfast sales.

Wendy's expects McDonald's to fight hard to retain its share of morning sales. "There's many other brands out there much weaker than Wendy's that we believe we can take a fair share of breakfast from," Smith said.

-By Paul Ziobro, Dow Jones Newswires; 212-416-2194; paul.ziobro@dowjones.com
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