Wendy's winged by surging rivals

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Wendy's is admitting that rivals have it on the run-and observers fault the fast-food chain's advertising.

Once the fast-food industry darling, the No. 3 burger chain trimmed its 2004 earnings outlook for the second time in a month, following a surprising 6% dive in October same-store sales at company-owned stores. John Glass, restaurant analyst with CIBC World Markets, called the October surprise "unprecedented," adding that at the low point of its woes McDonald's domestic comparative sales were down just 3%.

secret's out

Wendy's seems to have been hurt by rivals that have finally achieved menu parity. Executives of the Dublin, Ohio-based chain admit the competition hurt sales. "It's no secret that not only Burger King and McDonald's but a lot of the regional players, over the last 18 months, have introduced upgraded products, salads," John Schuessler, Wendy's chairman, president-CEO, said in a call with analysts. He said the chain would focus on speeding up product development and create dishes difficult for rivals to copy. Wendy's also cited discounting by competitors such as Burger King.

"I'm not buying it," said Jack Trout, president of marketing consultants Trout & Partners. "We don't have [product] parity here, we have lousy advertising. This is the curse of Dave Thomas. He's gone and they haven't come back with any reasonably interesting or effective advertising."

"They're admitting that their differentiating idea, which is quality, is no longer meaningful," he added. "If you say that and you don't have Dave, what have you got? You've got basically a losing proposition."

"They have no image since Dave died," agreed an industry executive.

Wendy's executives insist the "Mr. Wendy" campaign resonates with consumers, and blamed other factors for its woes, including a hurricane-related tomato shortage that forced the chain to ditch a chicken promotion.

Although Wendy's combined 3.9% overall year-to-date same-store sales growth in franchised stores isn't bad, it's far weaker than McDonald's Corp.'s domestic performance, which came on top of strong growth from the prior year. Add to that a resurgent Burger King, and Wendy's appears to be in trouble.

`eye off the ball'

"They've taken their eye off the ball with the quality message," said a restaurant advertising executive, noting that Wendy's has moved from creative where food was the star to situation comedy. "At a time when competitors are increasing their product quality, that's the time you can't let that go."

Wendy's has admitted that Mr. Thomas is irreplaceable, but has defended the Mr. Wendy campaign. Mr. Schuessler, however, hinted at tweaks to the effort. "We started it at the beginning of the year, and as you know our first-half results were quite strong," he said. "In any campaign that you have, you do tend to tweak it from time to time."

A Wendy's spokesman confirmed that spots set to break Nov. 22 will pump up the food message, and said the chain has added media weight for the remainder of the year.

CIBC's Mr. Glass blamed Wendy's problems on a re-emerging share battle among fast-feeders and the surge of premium offerings from rivals. "Wendy's no longer rules the upscale fast-food roost," he said.

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