Could Wendy's Overtake Burger King in Burger Battle?

Battle for No. 2 Spot Heats Up As Both Brands Struggle to Rebound

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Both Wendy's and Burger King have struggled in recent years with sales, marketing messages and management changes. But with both trying to turn things around, the battle for the No. 2 spot seems to be heating up.

Wendy's has been nipping at Burger King's heels and may be poised to dethrone the King as the No. 2 burger chain in the U.S., according to Janney analyst Mark Kalinowski. "We expect Wendy's to overtake privately held Burger King ... perhaps as soon as this year," he wrote in a recent analyst note.

Wendy's North American same-store sales in the third quarter were up 0.9%. Burger King's third-quarter sales in the U.S. and Canada took a 0.3% dip. Through September, its comparable sales in the U.S. and Canada were down 3.8%, while Wendy's North American same-store sales were up 1.1%

Burger King had systemwide sales of $8.7 billion last year, down 2.5%, and a 13.3% market share in the burger category. The chain's number of U.S. locations was up 0.2%, to 7,264. Wendy's had $8.3 billion in U.S. sales, down 0.6%, and a 12.8% share. Its number of U.S. stores rose 0.1%, to 5,883, according to Technomic.

McDonald's, perennially the top burger chain, has a 49.5% share in the category. Among all restaurant chains, Burger King and Wendy's were bypassed by Starbucks, whose 2010 sales made it No. 3 in the U.S., after McDonald's and Subway.

Mr. Kalinowski maintains that , aside from a focus on new products and food quality, Wendy's could boost sales if it continues to remodel locations with a more modern look, flat-screen TVs and fireplaces. He wrote that though it's estimated the chain has fewer than 20 revamped U.S. stores, if the project is maintained "we believe that the typical revamped restaurant will generate incremental sales growth of somewhere in the 4% to 6% range."

Many chains have been working on remodels, including McDonald's, Burger King and even Subway, which has been testing an upscale concept called Subway Cafe. In 2009, Burger King announced plans for a flashy contemporary redesign, "20/20." It has been revised by the new owners, 3G Capital, and the price tag halved with the aim of making it more affordable for franchisees struggling with sales declines. Burger King hopes to get 1,000 locations remodeled in the near future.

In the most recent earnings call, President-CEO Emil Brolick said that Wendy's is positioned to compete against what he called the "new QSRs" -- for quick-service, or fast-casual, restaurants.

"The bottom line is that they offer a better total experience and many would say a better overall value," said Mr. Brolick. "The competitive set has changed significantly. We understand this, and we are confident that we can successfully build our brand, build sales and build profits in this new environment."

Mr. Kalinowski said in an interview that Wendy's hasn't managed to "replace the effectiveness of the old Dave Thomas campaign, and they've had a erratic history since then," referring to the chain's positioning and marketing since the death of its founder in 2002.

Mr. Brolick acknowledged in the earnings call that Wendy's had lost its way.

"The other thing that has changed since 2000 is that Wendy's went through a difficult period and lost clarity of vision for the brand," Mr. Brolick said. "One might say that the brand went through an identity crisis. In the past 18 months, important progress has been made to help stabilize this situation. Clarity of vision is obviously essential, and we have now identified a position in the marketplace that is unique to Wendy's , is defensible and is profitable. That position is called 'A Cut Above.' "

Wendy's overhauled its French fries late last year, and it recently unveiled and has been marketing revamped burgers. Wendy's agency is Publicis Groupe 's Kaplan Thaler Group . "They're taking a hard look at what they offer and are trying to improve it within the context of what their brand stands for," Mr. Kalinowski told Ad Age .

Regarding Burger King's third-quarter results, Chief Financial Officer Daniel Schwartz said in a statement: "In the U.S. we remain focused on enhancing our menu, improving out restaurant image, streamlining operations and revamping our marketing communications process to appeal to a broader consumer base and drive profitable growth."

Indeed, Burger King just announced and has been marketing its new fries, and before that , unveiled its Chef's Choice burger, as well as ice cream.

Burger King has been taking a more general approach to marketing since it parted ways with CP&B earlier this year and began working with McGarryBowen . The new agency's ads are typically product-focused, as opposed to targeting the young male demographic the CP&B ads did. It's believed that Burger King will launch a another brand campaign in 2012.

Wendy's is announcing "A Cut Above" after a recent executive reshuffling left it without a chief marketing officer. Former top marketer Ken Calwell departed the company in June, and a replacement hasn't been named. North American President David Karam resigned last month, announcing he'd leave at the end of the year. Mr. Brolick -- who came on as president-CEO of Wendy's in September and is a Yum Brands and Wendy's veteran--was to take over day-to-day North American operations. In July, Wendy's sold Wendy's .Arby's Group to Roark Capital Group.

Burger King has had its own CMO churn. Ad Age reported in August that the company planned to put Flavia Faugeres in the global CMO role, replacing Natalia Franco, who had left in February after nine months. Her predecessor, Russ Klein, had exited in late 2009. With Ms. Franco's departure, Burger King realigned its global brand management and operations into one function. North American CMO Mike Kappitt, who reported to Ms. Franco, left the company at the end of 2010.

Neither Wendy's nor Burger King commented on future marketing plans or whether they'd increase ad spending, but Burger King outspends Wendy's , according to Kantar. In 2010, Burger King spent about $300 million on domestic measured media, while Wendy's spent about $282 million. Burger King is also on track to beat Wendy's this year, with measured-media outlays of $192 million through August, vs. Wendy's $164 million.

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