Why Wendy's Will Never Be Great Again


These should be exciting times for Wendy's (WEN):

  • The company spun off its Arby's sibling last year, freeing it to focus on its flagship burger-flipping chain.

  • In September, for the first time in its 42-year history, Wendy's reformulated its signature sandwich.

  • Just last month, the fast-food giant reentered the Japanese market,

  • And, it's hoping to give the breakfast market another crack soon.

However, pull up a stock quote and you'll find that a single share of Wendy's fetches about the price of one of its value meals. In fact, shares of Wendy's have been trading in the single digits for more than four years. There's little reason to expect that to change.

New Burger, Same Problem

The autumn debut of Dave's Hot 'N Juicy -- accompanied by a retro marketing campaign that brought back nostalgic "Where's the beef?" memories -- should have helped. The new burger features a more bountiful beef patty, bakery-style buttered bun, and extra cheese. In a twisted tribute, the new sandwich was named after the deceased founder, Dave Thomas, who never saw a need for an updated burger.

Wendy's can't help it. The "gourmet" burger joints are coming. Places with names like Five Napkin Burger and the organic-oriented Elevation Burger are raising expectations on the informal sandwich. Then you have the regional faves that are making territorial strides. Virginia's Five Guys is opening hundreds of new locations a year. West Coast icon In-N-Out Burger is taking baby steps eastward.

Upgrading its burger is nice, but even Dave's Hot 'N Juicy is no match for what some of these places are cranking out. In the meantime, retail watcher Technomic reveals that McDonald's (MCD) continues to gain market share at the expense of Wendy's and the now privately held Burger King.

McDonald's hasn't had to toss a new burger on the fryer to keep its charmed streak of success going.

Arby's Wasn't the Enemy

A fire sale for a majority stake in Arby's was cheered by investors late last year, sending the stock up to a fresh 52-week high.


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It's not as if unloading a concept has ever helped Wendy's turn around its namesake concept. A few years ago Wendy's shook off its fledgling Baja Fresh burrito joint and spun off Canadian bakery Tim Hortons (THI). All this did was bring down the stock to value-meal prices.

After all, it's not as if all of this focus led to a revival. Wendy's began 2008 with 6,645 stores. Three years later, there were just 6,576 locations.

This may not be entirely Wendy's fault. Burger King has struggled. Drive-in specialist Sonic (SONC) has also been a market laggard. Behind the Golden Arches, there is no worthy silver medalist these days. However, the facts are what they are. Wendy's is in trouble.

Will Goose Livers and Truffles Do the Trick?

It's not as if Wendy's hasn't gotten around to expanding overseas. It's just that it has been a disappointment as an export. Just 8% of its revenue comes from outside the United States. The burger chain may hail from Dublin, but it's the Dublin in Ohio.

Wendy's is getting crafty after flopping previously in Japan. Taking a page out of the gourmet playbook, the new Wendy's there offers a $16 burger topped with goose-liver pate and truffles. Yes, Wendy's just played the foie gras card. Whether that's the kind of novelty that will win it cult status in Japan or the ire of activists closer to home remains to be seen.

What about expanding the menu? When Wendy's tried to match Burger King and McDonald's in rolling out breakfast in the mornings, the a.m. rush never materialized, and Wendy's nixed its morning menu. (You know it's pretty bad when even Subway is promoting a breakfast menu, and you're not.)

More important, the consumer mind-set already has etched an impression of Wendy's that they can't shake loose. Trying to burn an older image by going all the way back to the glory days of Clara "Where's the beef?" Peller isn't going to be enough. If anything, in trying to be all things to all people, Wendy's may have lost the magic of its originally limited menu.

A few years ago, ordering a Frosty got you a simple frozen chocolate concoction. These days it's either vanilla or chocolate, and then an array of ways to turn what oozes out of that machine into sundaes, fruit parfaits, or shakes.

Wendy's can't go back to the past, and it may not be able to compete in the future.

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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