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This Fast Food Place Will Be A Dinosaur by 2015

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August 19, 2010 – Comments (21) | RELATED TICKERS: MCD , WEN , YUM

Ok, this post has been way overdue.  I know about these 3 companies more than most people and I will just spit it from the head.  Let's move away from all the detailed financial charts and all.  Let's get to what we know.  Let's get to what we see everyday on our way to work, on our vacations, on our weekends, in our social lives.  What am I talking about?  I'm talking about FAST FOOD.

Simple war between the 3 forces I believe are in the spotlight.   They are MCD, WEN, and YUM.  I will leave out Burger King.  Their place in fast food is pretty much unaffected.  They do their own thing, and they do it well for what they got going for them.  They won't be a dinosaur anytime soon.

Who will be?  Wendy's that's who!  Before I get to bashing Wendy's beyond belief, I will say what MCD and YUM has.  Both have huge brand recognition and respect.  MCD just a few years ago was on the decline.  Food quality was poor.  Management was losing control.  Stock was no where near what it is today.  Then they changed.  You can find their change on many MSNBC shows and documentaries.  They renovated their locations.  Added great colors to the buildings.  Tremendously improved their menu.  And with all that, they stuck to what they do best: Big Mac's, fries, and their deserts.  

YUM is similar.  They make up the KFC, Pizza Hut, Taco Bell, Long John Silvers, and A&W All-American Food Restaurants brands.  They have great success in each one.  KFC keeps up with the times in serving grilled chicken now.  Pizza Hut serves a wide range of foods they never would of touched 10 years ago: wings, pastas, etc.  Taco Bell seems to invent a new taco every month and make insane margins off these.  LJS and A&W are at the bottom but still producing results.

Now we get to Wendy's!  Wendy's has been a complete failure in the American fast food industry.  You see those buildings?  They are the SAME ones 10-20 years ago.  Nothing has changed.  Not even an update.  Pretty soon I wouldn't be surprised if some fell apart.  What has changed?  Well they removed their fried chicken which competed against KFC.  Wrong move.  They still got their sandwiches but can someone tell me what is in them?  I swear the quality just went down the toilet.  Their fries are still the same (2nd or 3rd best behind MCD and BKC).  But now they keep changing their menu every month it seems!  Salads? Asian chicken? Spicy nuggets? Back to salads again?  Oh now they added breakfast?  What took them so long to come up with that idea?  

Wendy's is trading around $4/share which seems like forever.  They are with Arby's who equally has menu issues.  On top of that, just open your eyes.  MCD parking lots, drive thrus, and stores are packed from morning to night.  Wendy's is always empty.  I pass them every day.  They are right next to a MCD or Burger King or Taco Bell and Wendy's is always losing.  If they can't rennovate their stores, parking lots, and find a solid menu, do you really thing this animal will survive much longer?

Bottom line stick with MCD, YUM, or even BKC.  Stay away from WEN unless you think they will be bought out.  Even if they are bought out, I doubt there will be much of a premium. 

Wendy's.  Past superstar.  Current struggle, Future dinosaur.

21 Comments – Post Your Own

#1) On August 19, 2010 at 11:55 AM, TDRH (99.72) wrote:

Now I am craving a Frosty.

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#2) On August 19, 2010 at 11:56 AM, brickcityman (< 20) wrote:

I'm finding it hard to disagree, but here are some other thoughts....

 

Based on my own experiences (only) it appears that Wendy's prime audience is Boomers.  And I would venture to guess that their overall fate comes down to how much boomers continue to purchase fast food.

 

There is one ray of hope though...

 

For whatever reason I have met alot of people who consider Wendy's the "healthiest" of the fast food burger joints (my wife included).  If they capitalize on this then perhaps they can grow a continued following.  But thats a big if in my book...  Their "baconator" and other such ventures only show them trying to emulate Hardie's/Carls Jr. instead of trying to carve out a niche.

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#3) On August 19, 2010 at 12:04 PM, BSCWatchlist (< 20) wrote:

the baconater is amazing.

Everyime I eat one I feel like I'm shortening my life expectancy by 6months. 

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#4) On August 19, 2010 at 12:06 PM, Melaschasm (53.44) wrote:

WEN has more debt than I like, and their recent growth seems to be the result of the recession, not from anything management has done.

From my personal experiences, WEN tends to have an older customer than most other fast food places.  For the next decade or two that is not a problem, since the US is expected to become older.

My long term concern is that WEN is barely making money right now.  When the economy improves many of their customers will spend more time/money at mor expensive places, and they will go back to losing money.

Is WEN doomed?  I think that a good management team with a focus on cost control, and better marketing could quickly turn them around.  However, the longer they stay with the status quo, the more difficult such a turn around plan becomes.

 

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#5) On August 19, 2010 at 1:19 PM, SweetMircha (93.98) wrote:

I've never had one of their burgers but had had a Spicy Chicken Sandwich, a Frosty & a Salad which I had to have them replace because it was old & wilted. It's a Thumb's Down for me too on this Franchise.

As a matter of fact my ex-brother-in-law owns 3 of their Franchises in Edmonton,Alta, Canada. He had the opportunity to buy into a Tim Horton's but chose not to. I feel sorry for him on that move.

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#6) On August 19, 2010 at 1:20 PM, mikecart1 (99.04) wrote:

#1)

I've never had a Frosty and don't plan on it.  I don't trust the workers or the cleanliness of the restaurant itself.  I do eat Wendy's but very rarely, and only when there are no other options - like vacations and remote locations.  Last time I ate there my fries were cold and soggy.  This leads me to believe their employees aren't trained to use the frier correctly and/or take the fries out before the timer goes off.  I've worked at BKC before.  This isn't just empty knowledge I'm saying.  There are things people need to follow in the kitchen.

# 2)

I don't see how they are healthier.  Starting with the cleanliness everything else falls too.  Their hamburgers aren't as good as Burger King.  Their fries aren't as good as McDonald's.  Their salads are overpriced.  They lost everything that made them original and great.  They added a bunch of desperate attempts to stay different (asian chicken?).

#3)

Haha.  I agree.  It was good the first time I tried it.  Then I looked at the nutrition facts after my stomach hurt a few hours later.  It is basically drenched in grease and fat.

#4)

Wendy's debt will continue to rise.  Their business line is flawed and behind.  Wendy's does have older customers.  The kids and new generations are already sucked into McDonald's, Pizza Hut, Taco Bell, etc.  These companies cater to them.  Pizza Hut for a long time had the book clubs.  They still cater to the weekend soccer and baseball teams that come in by the bus load to pack Pizza Hut.  You won't see this at Wendy's.  I see a bunch of 50+ year olds in there usually eating Chili and maybe a sandwich.  

I also doubt Wendy's is making money.  Maybe overall.  But many chains are losing money.  It doesn't take a rocket scientist to see that the Wendy's in your neighborhood that has 0 customers is making no money.

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#7) On August 19, 2010 at 1:33 PM, mikecart1 (99.04) wrote:

#5)

I actually like their spicy chicken sandwiches but feel they are way overpriced.  I used to get that with the baked potato but it seemed after awhile, they tried to buy the smallest baked potato to sell people.  Also they frequently forgot butter and condiments in the drive-thru when I asked them.  Sometimes they give me the wrong soda.

Wendy's is what MCD would of been if MCD didn't completely revamp their kitchen and product lines.  When you buy a Wendy's meal, you are buying food that may have been cooked several hours ago.  MCD is always fresh because they changed that policy during the early 2000's.  

I don't eat at any fast food place regularly but it is clear Wendy's is on the decline and it hasn't finished falling.

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#8) On August 19, 2010 at 3:59 PM, Dow3000 (< 20) wrote:

As an investment, I wouldn't touch it...but I gotta say Wendys is my favorite fast food by far...I talk about it all the time.  For frame of reference I am 25.

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#9) On August 19, 2010 at 4:40 PM, bellbell63 (< 20) wrote:

My favorite (cheap meal) at WEN

Plain baked potato

Small chile (which I pour onto the potato)

Free senior beverage.

 With tax <$3.00.    :-)

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#10) On August 19, 2010 at 5:02 PM, dargus (84.99) wrote:

Based on your description, one could easily draw the opposite conclusion. It sounds like MCD and YUM are peaking since they've made the improvements already, and WEN has plenty of room for improvements to gain market share.

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#11) On August 19, 2010 at 6:59 PM, EnigmaDude (95.14) wrote:

I agree with much of what you say, however, I think comment #10 has a great point.  They may be down but don't count them out just yet.  You said it yourself:

MCD just a few years ago was on the decline.  Food quality was poor.  Management was losing control.  Stock was no where near what it is today.  Then they changed.

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#12) On August 19, 2010 at 8:09 PM, TMFDeej (99.40) wrote:

It may be a terrible stock, by Wendy's by far has the best food of the three.  It isn't even close.

Deej 

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#13) On August 20, 2010 at 12:15 AM, RS429CJ (< 20) wrote:

 Maybe not a good investment, but  Wendy's by far has the  most healthy menu choices, great baked potatos, salads,even the burgers seem as though your getting fair to good quality beef !  I agree by far superior to the other 3 .  In my neck of woods you seldom see MCD or BK parking lots anywhere near busy 

 

 

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#14) On August 20, 2010 at 3:37 AM, Valyooo (99.53) wrote:

People really don't understand what "healthy is"

NOTHING you get at any of them is healthy.

Besides that I would say 95% of people don't know what they are putting in their body just basic nutrition wise with micro and macronutrients, fast food places add chemicals that don't show on the daily value charts.

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#15) On August 20, 2010 at 9:59 AM, TDRH (99.72) wrote:

You should really try a Frosty -they are delicious.   As for the cleanliness it depends on the management and the workers at any of the FF joints you mention. 

I agree with Enigmadude, there is potential upside if they get their act together.  Have not been in one for years, but I remember I liked their grilled chicken sandwich, and the fact that they did not used to shred their lettuce.

They just need some energy and another marketing campaign like "Where's The Beef?"  This may be before your time, but it was pretty good.  

That said, following Enigma Dudes train of thought I am going to pick Wendy's with a 5 year green thumb and assume that somone will seize the day.  

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#16) On August 20, 2010 at 10:20 AM, mikecart1 (99.04) wrote:

#9)

You really aren't getting much for that $3 you spend.  You are paying at least double of what you can get at a grocery store for less quality.

#10)

In that case, then everyone would run away from companies like JNJ since they have their act together and just invest in companies that are performing poorly.

#12)

What about their menu is superior to any other fast food place?  They don't even use real chicken.  Their hamburgers have less quality than a Burger King.  Their fries are 3rd at best.

#13) 

There is nothing healthy about any fast food chain.  All of it is bad for you - no exceptions.

#15) 

5 year's Wendy's will either be gone, name changed, or be big.  I am betting a big no on the third haha.

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#17) On August 20, 2010 at 2:32 PM, Gemini846 (60.44) wrote:

I managed a Wendy's (When it was seperate from Arbys) for five years, so I have a few things to say here. There is nothing wrong with the business model, but everything is wrong with the execution. Until the disconnect between what corporate management expects to happen in stores and what really happens in stores is corrected they cannot command the prices for the food they are charging and will continue to loose market share.

1) Wendy's IS healther than MCD, BK, YUM et combined. Oil is non saturated, ground beef is fresh and has expiration dates, grilled chicken is skinless, salads are real ingrediants chopped daily. Chili is boiled and is one of the healthiest things you can ever order from a "Quick Service" restaurant.

2) We aren't talking about comparing fast food to grocery stores. I can't get a meal from a drive through window at my local grocery at any rate of speed, so throw that comparison out. If that mattered then MCD, BK and YUM would be down the tubes also

3) I don't know where you get off saying they don't use real chicken. They pay more per peice than any other chain and are rated consistantly on par with Chick Fil A. Compare to McChicken and tell me that's "real chicken"

Furthermore I don't know how you can say the burgers are of lower quality than BK. Your taste may be skewed, but fresh meat grilled vs frozen patties broiled. Hmm? Fresh produce vs bagged produce. This one isn't even close.

Fries are an issue. Stores routinely keep them longer than the hold time, but I greatly prefer the frys cooked correctly and served within the hold time to BK. (MCD blows the doors off all other frys). WEN needs to continue to focus on healthy substitutions for frys until they improve quality. Potatoes, chili, side salads are better and healther choices.

4) Wendys has a taste that has always appealed to adults. That's why you say "baby boomers" like it. Sandwiches that come standard with Mayo, Tomatoes and Lettuce vs just "kid toppings" like ketchup and pickles.

5) The product rotations are attempts to capture new tastes. MCD rotates thier product mix, no reason WEN shouldn't do the same. I agree that execution is more important than product mix.

With all that said, it is obvious to me that you have never been in a well managed, modern Wendys. The reason other chains are growing in market share is that they are consistantly executing on the goals of corporate management. WEN is trying to re-define itself not as a better MCD, but as a tastier alternative to the PNRA crowd who can't stomach another turkey sandwich.

Unfortunately thier grass roots efforts to change this perception is undermined by local managers and regional franchisees who are more concerned with taking shortcuts to maximise temporary profits than to maximise the health of the brand.

That is why you get cold burgers, soggy frys, old lettuce in your salad, chocolate drip from the beat up frosty machine and tore up stores that are in bad need of a remodel or rebuild.

Basically from the mangers on down they don't practice what they preach and its been headed that way since the early 90's when it was no longer controlled by the Thomas family.

I see no evidence that the Arbys management that purchased WEN a couple years ago has made any attempts to change the trajectory rather than just the same ole product mix changes and a few modern "example stores" (that were already well run).

If you do like thier burgers they are doing a massive survey campaign. With about 5-6 email addresses you can get a free single every week just to tell them whether or not they suck. Hopefully they will be able to put all that togeather and see some change.

Personally I would love to see some activist shareholders stage a buyout to really clean house and get it back to "Dave's Way".

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#18) On August 20, 2010 at 3:14 PM, mikecart1 (99.04) wrote:

#17)

1) You can't seriously tell me Wendy's is healthier.  You are comparing which cigarette is less likely to cause cancer.  They are all unhealthy.  This includes places like Subway too.  There is nothing natural about any of those places.  The entire idea of a sandwich is a misconception in American diet.  The bread has a far greater chance at causing long-term obesity than the meat between the buns does.  This is simple nutrition knowledge.

2) Why not compare to a grocery store?  If you want to be truly competitive, then a place would strive to not compete only against their fast food competition, but restaurants and even grocery stores as well.  Maybe this is the edge Wendy's needs.

3) These comments are somewhat biased.  I worked at Burger King before and won't vouch that they are the best fast food establishment.  I believe broiled with real fire is far better than how Wendy's or McDonalds prepares their hamburgers.  I also bet it is far healthier too when a new patty isn't dipped in the same grease as that of the ones prior.

4) Not to be harsh but Mayo is one of the most unhealthy and disgusting condiments in the fast food industry.  I don't know where the trend started, but it needs to stop. Oil, egg yolk, and vinegar just screams eww to me.  Also this is where Burger King shines.  You can have it any way you want.  I have gone to several Wendy drive thrus asking for my sandwich to come without mayo and it is always there.  I am not one to complain though.  I just don't go up to their place again.  I bet I'm not the only one either.

5) I have actually tried Wendy's in several different states on the east coast including DC metro area, VA, and PA.  They all have the same problems: lack of speed in drive thrus (when there are lines, they are backed out to the street not from business, but from slow process), dirty interiors, outdated exteriors, and poorly made food (cold or soggy fries, sandwiches sloppily made, and drinks that are incorrectly served).

Only one Wendy's has ever made me smile and that was where I used to live in Alexandria VA near Landmark (you might know the place since it is a very popular location).

And no I'm not a lifetime hater of Wendy's.  I think what has happened could of and would of happened to MCD.  But MCD changed for the better.  WEN has changed for the worst.

And who came up with the idea to remove their fried chicken and biscuit combos?

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#19) On August 27, 2010 at 10:20 AM, Varchild2008 (85.27) wrote:

Wendy's in Warren Michigan seems to get a lot of business...*shrug*

It is not Wendy's having problems as their same store sales are up this year..  It is the other half of their business.. Arby's is in trouble.

If they can turn-a-round Arby's or better yet just spin it off as a bad merger experiment that it has been..... Then WEN shares will finally rise.

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#20) On August 27, 2010 at 11:22 AM, Tastylunch (29.29) wrote:

Do you have any quantatitve non-ancedotal evidence to support your claim?

Just curious.

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#21) On August 29, 2010 at 9:31 PM, DivInvestor2010 (< 20) wrote:

I don't know much about the debt or a lot of things you guys are talking about.  I like to buy what I know and when I have a choice between BK, MCD and Wendy's, I choose Wendy's.  Call me crazy but everything in there seems more real.  I love the burgers.  I am not sure what it is, but I love the taste or the buns and all the fix'ns that come with it.  

 Also, all the Wendy's restaurants I go to look the same, but I don't really care.  I don't care that MCD or Dunkin Donuts has done a makeover to appeal to the younger generation - what matters to me is the taste.  If I were them I would push the healthier and better tasting menu over the others.  I also think they need to get into the breakfast area and grab a well-known coffee brand.  

As for investing, I would like to invest in this company because I like the food and buying what I know, but I am hesitant with the price and what I am hearing on these blogs.  If anything, its seems that Arbys is bringing them down. I think they should drop them as I would never go near a Arbys.  If I want roastbeef, I can go to the market and get some cold cuts. 

Thank you! 

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