Which Burger Joints Are Eating Wendy's Lunch?

Which Burger Joints Are Eating Wendy's Lunch?
Which Burger Joints Are Eating Wendy's Lunch?

This is a big week for Wendy's (WEN). For the first time in its 42-year history, the country's third-largest burger chain is remaking its signature sandwich.

Monday's debut of Dave's Hot 'N Juicy -- complete with a meatier patty, buttered bun, and extra cheese -- is the burger flipper's shot at competing with the "gourmet" burger shops that continue in grow in popularity. Still, it's going to take more than menu tweaks for Wendy's to turn things around.

Fast-growing chains like Five Guys and In-N-Out Burger are gobbling up market share, according to researcher Technomic. In fact, they're eating Wendy's lunch: In-N-Out recently expanded out of its West Coast hub to open in Texas, while Five Guys is looking to open hundreds of new stores this year alone.

And you can't ignore the Hamburglar-harboring giant itself.

Technomic's data also shows that McDonald's (MCD) -- unlike Wendy's and the recently private Burger King -- has also been feasting on market share at the competition's expense. The Golden Arches have been shining brightly, primarily thanks to the world's largest eatery's barbell pricing strategy. There's a dollar menu of apple pies and cheeseburgers to keep the penny-pinchers coming, as well as a growing assortment of chicken breast salads, fruit smoothies, and barista-worthy coffee drinks to keep others spending more.

Clowning Around With Ronald

Wendy's has done everything it can to rip pages out of the McDonald's playbook.

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For years, it has offered premium chicken sandwiches and artisan salads. It recently began leaning on its Frosty machines to serve up parfaits similar to Mickey D's yogurt-based granola-topped treats. Unfortunately, the desired sales results just haven't materialized.

Wendy's has tried to shed sister concepts to avoid distractions. It sold Baja Fresh and spun off Tim Hortons (THI). This summer, it finally cut Arby's loose.

This would be a fine strategy if Wendy's was being held back by external factors, but its problems are bigger than that. Sprinkling sea salt on natural-cut fries or tossing berries into a bowl of salad greens isn't going to stop folks from craving Five Guys' drip-juicy burgers or trekking out to the McDonald's drive-through at 3 a.m. for a French-fry fix.

Would You Like Fries With Your McStock?

Even if we overlook the recent malaise at Wendy's, the larger burger buddy, McDonald's, is an investor's best bet. It is trading at a lower earnings multiple, even if we go out to 2012 when Wendy's will be over the Arby's sale. McDonald's is also offering a meatier dividend yield of 2.8%.

This doesn't mean that Wendy's is toast. Curious burger fans will return to the red-haired icon to sample Dave's Hot 'N Juicy -- once. If Wendy's can't keep repeat customers coming back after that, it's going to be a cold and not-so-juicy next 42 years.

I'll stick with McDonald's.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. Motley Fool newsletter services have recommended buying shares of Tim Hortons and McDonald's.

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