Which Burger Joints Are Eating Wendy's Lunch?

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Which Burger Joints Are Eating Wendy's Lunch?This is a big week for Wendy's (WEN). For the first time in its 42-year history, the country's third-largest burger chain is remaking its signature sandwich.

Monday's debut of Dave's Hot 'N Juicy -- complete with a meatier patty, buttered bun, and extra cheese -- is the burger flipper's shot at competing with the "gourmet" burger shops that continue in grow in popularity. Still, it's going to take more than menu tweaks for Wendy's to turn things around.

Fast-growing chains like Five Guys and In-N-Out Burger are gobbling up market share, according to researcher Technomic. In fact, they're eating Wendy's lunch: In-N-Out recently expanded out of its West Coast hub to open in Texas, while Five Guys is looking to open hundreds of new stores this year alone.

And you can't ignore the Hamburglar-harboring giant itself.

Technomic's data also shows that McDonald's (MCD) -- unlike Wendy's and the recently private Burger King -- has also been feasting on market share at the competition's expense. The Golden Arches have been shining brightly, primarily thanks to the world's largest eatery's barbell pricing strategy. There's a dollar menu of apple pies and cheeseburgers to keep the penny-pinchers coming, as well as a growing assortment of chicken breast salads, fruit smoothies, and barista-worthy coffee drinks to keep others spending more.

Clowning Around With Ronald

Wendy's has done everything it can to rip pages out of the McDonald's playbook.

For years, it has offered premium chicken sandwiches and artisan salads. It recently began leaning on its Frosty machines to serve up parfaits similar to Mickey D's yogurt-based granola-topped treats. Unfortunately, the desired sales results just haven't materialized.

Wendy's has tried to shed sister concepts to avoid distractions. It sold Baja Fresh and spun off Tim Hortons (THI). This summer, it finally cut Arby's loose.

This would be a fine strategy if Wendy's was being held back by external factors, but its problems are bigger than that. Sprinkling sea salt on natural-cut fries or tossing berries into a bowl of salad greens isn't going to stop folks from craving Five Guys' drip-juicy burgers or trekking out to the McDonald's drive-through at 3 a.m. for a French-fry fix.

Would You Like Fries With Your McStock?

Even if we overlook the recent malaise at Wendy's, the larger burger buddy, McDonald's, is an investor's best bet. It is trading at a lower earnings multiple, even if we go out to 2012 when Wendy's will be over the Arby's sale. McDonald's is also offering a meatier dividend yield of 2.8%.

This doesn't mean that Wendy's is toast. Curious burger fans will return to the red-haired icon to sample Dave's Hot 'N Juicy -- once. If Wendy's can't keep repeat customers coming back after that, it's going to be a cold and not-so-juicy next 42 years.

I'll stick with McDonald's.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. Motley Fool newsletter services have recommended buying shares of Tim Hortons and McDonald's.




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Pappakenn

Wendy's need only look to the way people like burgers in other countries, add cheese to some fry selections, bring back the salad bar. Wendy's has it's chilie, made a nacho bucket. (Deversify) Make a super taco. Increase portions, there is a lot that can be done to improve Wendy's market. If you own stock, My suggesting would be to hold on to it, Wendy's is not going silently into the night.

Lastly, Ask management to reward empoyee's who help Wendy's make transition, let the world know you have good management along with caring employee's, something management has probably forgotten. For anything to become successful everyone must care!

September 21 2011 at 8:08 AM Report abuse rate up rate down Reply
savemycountry911

Someone said, "If we wanted healthy food, we'd go to the healthfood store".

September 20 2011 at 10:05 PM Report abuse rate up rate down Reply
motor48

Big Mistake for the fast food to try and Get healthy If its healthy Its Just not as tastee. In N Out makes there Burgers the old fashion way and Use qualilty Meat, Potatos, and Shakes and Thats all they serve want Breakfast Go somewhere else Carl Jrs (hardees) has the best with there Scracth Bisquits

September 20 2011 at 9:21 PM Report abuse +1 rate up rate down Reply
kevin

I don't know exactly what it is....their drive-thrus are insanely fast, like you've pretty much got your food as soon as you drive up to the window. But the quality of the food? I dunno....it's still got a little bit of that AM/PM burger feel to it, and the workers (from what I've seen) aren't too motivated. In N Out's workers are just over-the-top nice and friendly, and their burgers and fries are to die for. The feel I get from Wendy's is: "this is our business and we want you to come spend your money here", whereas In N Out's seems more like "we want you to have the absolute best burger and eating experience you've ever had". It feels like that every time I go there! Those kids are bubbly and positive! I love it!

September 20 2011 at 3:47 PM Report abuse +1 rate up rate down Reply
ilm9p

The begining of the end: Screwing around with what Dave Thomas built.

September 20 2011 at 1:03 PM Report abuse rate up rate down Reply