Wendy's Won't Be Wendy's

By Michael Carter - June 19, 2012 | Tickers: MCD, WEN, YUM | 0 Comments

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“Now that’s better.”  Do you recognize that slogan?  Well I can’t blame you if you don’t.  It is the new Wendy’s (NASDAQ: WEN) slogan recently introduced in April to replace the “You know when it’s real” slogan that itself only lasted 2.5 years.  Wendy’s slogans have changed almost as much as its menu and branding, and the share price has underperformed during much of the past decade throughout all the changes since founder Dave Thomas’ passing in January of 2002.

The share price in fact has pretty much not changed over the past few years and has stayed in the $3.50 to $5.50 per share range after falling horribly in 2007 from over $20 per share.  During that time, here are some of the infamous menu changes that took place:

Additionally, Wendy’s phased out and stopped offering their fried “home-style” chicken strips in most U.S. locations at the end of 2006.  Throughout the past 5 years, they also changed the name of several menu items, manipulated the size and weight of some of the patties for their popular hamburgers to reduce costs, removed Swiss cheese from the menu, modified some meal recipes, and changed the marketing slogan for the U.S. market at least five times -- it's hard to say exactly how many slogans due to the fact that during particular time frames, there was no primary slogan, but a couple of different slogans that were used interchangeably.

Perhaps what has happened to Wendy’s the past few years is really no different than what happened during much of its existence when Dave Thomas was not in an active leading role.  Three years after Dave Thomas took a less active position within the company in 1982, it was noted in 1985 that Wendy’s was already suffering from brand awareness.  1985 was the real introduction of their breakfast menu and it quickly disappeared after poor results.  Dave Thomas eventually came back in a leading role and put Wendy’s back near the top during the 1990s with his famous commercial campaigns.  Doing so, Wendy’s was a solid known brand and the stock price hit $33 per share in late 1993.  Things have changed a lot.

Today Wendy’s continues to change the menu and it really makes little sense for either the consumer or the company.  It is hard to tell if any real research goes into any of their new menu items.  Generally a restaurant will test their products to third parties, do trials, and get input from taste testers before a product goes out to market.  Can you honestly believe that anyone tested the boneless chicken wings before they were introduced and flopped in 2009?  How about the pancakes and omelets being removed from the breakfast menu in 2011?  The consensus reason for their removal was that they aren’t "to-go friendly."

Looking at the Wendy’s menu today, it is almost unrecognizable.  The ‘W’ is supposed to be its top prospect to take on the Big Mac from McDonald’s (NYSE: MCD) and the Whopper from Burger King.  However, it is also taking on the Dave Hot ‘N Juicy, Bacon Deluxe, Baconator, Double Stack, and Jr hamburgers as well – all on the same Wendy’s menu.  It makes no sense.  Not only is Wendy’s having a difficult time competing and differentiating itself in the fast food market, but it has a tough time creating menu items that make sense given what they already sell.  Some of the new menu items actually cannibalize Wendy’s current products, lower revenues, confuse the consumer base, and I’m not sure if they even realize this possibility during the process!

Wendy’s has also failed to some extent with the global market.  Whereas Yum! Brands (NYSE: YUM) has succeeded overseas under its three main restaurant concepts of KFC, Pizza Hut, and Taco Bell, Wendy’s has mostly seen failure.  Some of the notable countries that Wendy’s had stores in for a significant period of time, but not anymore are Greece (1994-2002), Hungary (1994-2002), Hong Kong (1991-2000), South Korea (1984-1998), and United Kingdom (1980-2007).  I was in Asia last year, including South Korea, and I saw plenty of Pizza Huts and Taco Bells, several Subway’s and other popular American fast food chains, but never a Wendy’s.

Buying shares of Wendy’s really comes down to whether you believe history repeats itself or if it can acquire the correct leadership to bring Wendy’s back to its glory days.  Dave Thomas isn’t around and I’m sure if he was, many of the changes would not have occurred.  One most notably was the removal of the fried chicken strips in 2006.  Before Wendy’s, Dave Thomas helped Colonel Sanders with that other company we all know about – KFC – which is currently under the successful Yum Brands. 

Maybe Wendy’s can stick with a slogan so people will associate it with the company.  McDonald’s has used the same “I’m lovin’ it” slogan since 2003 and their stock performance is pretty much the inverse of Wendy’s.  Maybe Wendy’s can create a menu that is consistent and makes sense.  Creating buffalo wings here and a new salad type there, while changing the fries recipe, and introducing or reintroducing a sandwich makes no sense.  How are you supposed to generate repeat customers if they don’t even know what the latest menu offers? 

Maybe Wendy’s will start to return to greatness when they stop trying to be like McDonald’s and start being like Wendy’s.  The share price would soon follow.

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