More than a month has passed since a Las Vegas woman said she found a manicured human finger in her chili at a San Jose, Calif., Wendy's. The source of the digit remains a mystery and has provided much late-night punch-line fodder. "She went back there for lunch today-she's trying to collect all five," broadsided David Letterman. But it's no joke to the No. 3 burger chain, already reeling from same-store sales declines and surging rivals that have stepped up their game with new menus.
"Wendy's fundamental brand promise has always been about quality controls, standards and integrity," said James Bell, senior partner at brand consultant Lippincott Mercer. "When you get somebody claiming something like this, it shakes the core of what Wendy's stands for in people's minds."
On April 15, Wendy's doubled its week-old reward to $100,000 for verifiable information about the origin of the "foreign object." The chain ran newspaper ads with the reward offer and a toll-free information line. "Our brand reputation has been affected nationally. We are determined to find out what really happened," said Wendy's president-chief operating officer, in a statement.
The chain posted a 5.1% drop in same store sales in March, its sixth decline in seven months (see chart). Parent Wendy's International, meanwhile, is set to release its quarterly earnings this week and analysts are expecting the balance sheet to take an additional hit from the crisis. With the Western region, where the incident occurred, accounting for roughly 20% of system sales, the larger impact could drive comparable sales down another 1% over the next few months, predicted John Glass, restaurant analyst with CIBC World Markets.
The crisis, moreover, exacerbates Wendy's lingering troubles. "Their competition's ... far more dynamic marketing, Dave Thomas dying, having a stagnant menu and changing consumer health habits all are reasons the brand has declined," said Mr. Bell. "This couldn't come at a worse time at this juncture for Wendy's."
While advertising continues to claim "It's better here," the marketer is working up a fresh tagline under Ian Rowden, new exec VP-chief marketing officer, to replace the failed Mr. Wendy effort. The goal is to better communicate the quality and leadership image in the quick-service food chain. What form that effort, handled by Interpublic Group of Cos.' McCann Erickson, New York, will take is still a secret.
Analysts, however, expect things to improve in the second half of 2005 since the chain has begun installing double-sided grills to improve its speed and taste of burgers. It's also testing deli-style Frescata sandwich and a new value menu (AA, April 11) and isn't ruling out revisiting breakfast.
Should the investigation fully absolve Wendy's of any role in the incident, the chain could recover quickly, in part because of its quality heritage.
"If there is any decline, I would expect it's more of a blip," said Bob Sandelman, president of Sandelman & Associates. While fresh data from the consultant's RestaurantPoll.com report showed that Wendy's scores fell for overall satisfaction and likelihood of recommending the chain to a friend, they appear to be related more to service and beverage issues. "Food ratings actually have increased," he said.
Brand In Trouble
Aside from the finger, Wendy’s has had trouble finding an ad replacement for founder Dave Thomas