Whither Wendy's Under Nelson Peltz

Will Merger Give Chain the Sizzle It's Been Missing?

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CHICAGO (AdAge.com) -- To beat back Big Mac, Wendy's needed a sharp strategy, a consistent identity and marketing and menu innovation fit for a king. What it got was Nelson Peltz.
Promising results: Wendy's ads from Kirshenbaum broke in February.
Promising results: Wendy's ads from Kirshenbaum broke in February.

After a prolonged period of agitation, Mr. Peltz's Triarc has won control of Wendy's and will merge it with Arby's to form the country's third-largest fast-food chain. Triarc CEO Roland Smith is taking on the same role at Wendy's. Mr. Smith has promised more focus on breakfast and snacking, as well as a shift in advertising to emphasize quality and target consumers considerably older than Wendy's previous target.

But if history is any teacher, those shifts could take a while. After buying Arby's in 1993, Triarc didn't make a significant menu change until 2001, when it added Fresh Market sandwiches, and it didn't change agencies for more than 11 years, though most of its ad messages were not that well received. What Triarc did do, however, was to boost Arby's measured-media outlay nearly 50% to $44 million in a three-year period.

The new owner may also be reluctant to rile Wendy's franchisees too much, particularly those (including the family of founder Dave Thomas) who backed franchisee David Karam and private-equity firm Kelso in an unsuccessful bid to buy the chain. Not only has the outcome of the company's sale been an emotionally wrenching experience, but a number of operators and their families have been involved with Wendy's, and in some cases the Thomas family, since the company's birth.

Most important meal of the day
In an e-mail interview, Mr. Roland said Triarc plans to more closely target customers aged 25 to 54, significantly older than the under-30 men the chain has courted in recent years and who are the typical target of, for example, Burger King. He also said that "Wendy's is on record that breakfast is an important and growing segment ... and it's safe to say that we will take a hard look at it as well as the snack occasion and a beverage strategy."

Wendy's second-quarter earnings underscored the need for change. The chain's profit fell 72% from the year before and samestore sales at company-owned locations were down 1.6% over the same period.

Breakfast has been a sticky issue at Wendy's, in part because Mr. Thomas never wanted to serve it. In fact, some point to a general lack of innovation. "I'm not confident that the products are right yet," said one franchisee. "Breakfast is an obvious possibility, but not unless you can do something that is distinctive and creative in a way that is consistent with the consumer's perception of Wendy's."

The breakfast quandary is part of a bigger problem: New menu platforms haven't been working. Wendy's Frescata line, a collection of premium cold-cut sandwiches, tanked in 2006. The franchisee noted that Wendy's innovation was once a badge of honor. Now the chain is scrambling to catch up on key areas such as breakfast, coffee and wraps.

Darren Tristano, exec VP, Technomic, however, said Arby's has lately been better than Wendy's on the innovation front. "If they can channel some of that to Wendy's and take a fresh look, that will probably help their efforts." Arby's recently added loaded potato bites and toasted subs to its menu.

Mixed messages
In the six years since Wendy's lost its founder and trusty pitchman, marketing messages have been mixed. Then-agency McCann Erickson, part of Interpublic Group of Cos., developed the unpopular "Mr. Wendy" campaign and the marginally successful "Do What Tastes Right." In 2007, the $435 million account was moved from McCann to Publicis Groupe's Saatchi & Saatchi, New York. That shop developed the "red wig" campaign, which was popular but polarizing and failed to drive sales long term. In January, Wendy's moved the bulk of its business to MDC Partners' Kirshenbaum Bond & Partners. Its ads broke in February, and early indications have been promising.
Triarc CEO Roland Smith
Triarc CEO Roland Smith

Mr. Smith maintains that advertising will be an important component of the new strategy. "You keep customers with great food and friendly service. You attract new customers with advertising," Mr. Roland said.

Kirshenbaum may have little to worry about. When Triarc bought Arby's in 1993, the advertising account stayed at Doner until 2004, following a 2.3% dip in same-store sales the year before. The account is now with Omnicon Group's Merkley & Partners. Arby's advertising budget grew from $30 million in 1993 to $44 million in 1996, according to TNS Media Intelligence, though the company's spending has been relatively flat for the last several years. Arby's spent $102 million in 2007, according to TNS Media Intelligence.

Mr. Tristano argues that an Arby's comparison may not be a fair one. "They're going to do anything they can to maximize shareholder value," he said. "So my guess is that you'll see more changes rather than nothing at all.
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