Wendy's Officially on the Block
Higher Prices Have Stymied Same-Store Sales Growth
CHICAGO (AdAge.com) -- It's official: Wendy's is for sale.
After apparently exhausting its turnaround options, the No. 3 burger chain today has "determined that the exploration of a sale is the appropriate next step in the investigation of value-creating alternatives for our stakeholders," according to a statement from James V. Pickett, chairman of the board and the chain's special committee.
Disappointing same-store sales growth
The company also adjusted its outlook for 2007 based on lower-than-expected same-store sales and higher commodity costs. Same-store sales grew 3.8% during the first quarter but just 0.7% during the second quarter through June 15.
Management blamed competitive regional pricing by rivals, who raised prices to cover higher costs, and Wendy's followed. But customers have apparently rejected the higher prices, and store traffic has suffered.
"We've delivered 12 consecutive months of positive same-store sales through May, but the last two months have been challenging as we've aggressively adjusted pricing to bring Wendy's more in line with the market," President-CEO Kerrii Anderson said in a statement. "We believe our new market-based pricing approach is the right long-term strategy to generate more positive store operating margins, but it has pressured transactions in the short-term."
New ad campaign
Ms. Anderson said Wendy's new advertising campaign via Publicis Groupe's Saatchi and Saatchi, New York, "will clearly tell consumers about Wendy's superior quality and great-tasting products." The campaign broke just before Memorial Day with a heavy promotional schedule, including numerous product giveaways and interactive marketing. But so far, though it has been well-received, consumers haven't responded as hoped.
Some view today's move as a no-confidence vote in the strategy. "We believe recent sales and profit trends may have diminished board faith in the current strategy and seem to have heightened resolve to sell the company," said David Palmer, restaurant analyst for UBS Equity Research, in a note to investors.