What’s wrong with Wendy’s?
By Jordan Valinsky, CNN
New York (CNN) — For a logo with a trademark grin, Wendy’s has little to smile about nowadays.
The burger chain’s stock has lost nearly 50% of its value this year. Wendy’s executive suite has contended with several departures, and it’s currently operating without a permanent CEO after its previous leader abruptly left after just a year-and-a-half on the job. Plus, a confusing mix of promotions hurt sales last quarter.
“We are not happy with our sales performance,” Ken Cook, Wendy’s CFO and interim CEO, bluntly admitted on its most recent earnings call in August.
The fast food industry is in a slump, and Wendy’s isn’t immune. Chief rivals McDonald’s and Burger King also reported sluggish sales earlier this year as consumers cut back spending. However, both rebounded over the summer and fall thanks to an increased focus on marketing and targeted promotions.
Not so much for Wendy’s.
US sales at stores open at least a year in the third quarter are forecast to fall 5.8% when the company reports earnings next week, according to Jim Salera, a research analyst for Stephens. That’s even worse than the 3.6% decline in the previous quarter.
“Investors are really focusing on when the company can get same-store sales trends moving back in the right direction and we had seen little progress of that,” Salera told CNN.
Wendy’s is being forced to take action, recently announcing an aggressive turnaround plan that aims to reignite sales. However, revitalizing a 55-year-old chain is not easy.
McDonald’s, which has nearly triple the number of locations in the United States, found recent success with new deals and menu items. McDonald’s recent growth has also eaten away at some of Wendy’s market share.
Wendy’s sits in a “more of an elevated position where it’s not just focused on price,” Salera said, and is focused on quality. After all, the chain prides itself on its “fresh, never frozen” tagline for its patties, which has been in use since its founding in 1969.
“But as consumers that are trading down or in some cases just trading out entirely and just skipping (fast food) occasions, McDonald’s is leading a lot more with price than an operator like Wendy’s,” he added.
Back to square one
Wendy’s recently announced a “comprehensive strategic plan” called “Project Fresh,” under the guidance of former Taco Bell CEO Greg Creed.
“Wendy’s board of directors and management team are dissatisfied with the current valuation of the company and have been working to put the company on the right path to create value for our franchisees, employees and shareholders,” said Art Winkleback, chairman of Wendy’s board, in an October 9 press release.
Plans include refreshed marketing to remind customers of its “rich heritage of quality, innovation and unique voice.” The company also intends to help franchisees improve profits and increase investments in restaurant technology, like digital menus, to “enhance the customer experience.”
BTIG analyst Peter Saleh, however, doesn’t think Wendy’s plan is “tackling the root of the problem” and that its “issues go far deeper than some marketing changes or some menu adjustments.”
Rather, he said that Wendy’s problems stretches back more than a decade to a remodel initiative of its US restaurants that was meant to modernize the chain. Instead, the final product was “watered down a lot” from its initial plan because of several leadership changes.
“Wendy’s is now starting to talk about kind of a multi-year plan to install digital menu boards, which have been around for over a decade,” Saleh told CNN.
For comparison, around the same time, McDonald’s remodeled a vast majority of its US restaurants, adding digital kiosks and refreshed interiors. The work was largely completed by 2020.
“The biggest problem (Wendy’s) have is not their food … it’s (their restaurants) are old and tired,” he added.
Salera agreed that Wendy’s has a “solid offering” with its food. The chain recently relaunched its chicken tenders to capitalize on the trend for crispy chicken, and he complimented the revamped Frosty offerings to establish it as a “unique Wendy’s asset.”
He said that the brand’s plan of “focusing and skimming down the number of promotions or limited-time offers is a positive (move),” especially after the variety of deals in the “100 Days of Summer” promotion proved to be too complex for customers to understand.
Additional details of Wendy’s plan will be revealed during its November 7 earnings call.
The-CNN-Wire
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