What the Heck Happened to Wendy’s?

Wendy's is in the midst of an extensive re-branding initiative that may change the company's image more than it originally intended. Many existing stores should welcome the change, and the expense may prove worthwhile in the end.

May 29, 2014 at 11:38AM

Last week I took my kids to Wendy's (NASDAQ:WEN) after soccer practice. It was clean, modern, and busy. It was nothing like the Wendy's that I expected. Personally, I'm not sure that I like the change, but as an investor I can see that the change was much needed and is one more contributing factor to what should be a successful period for Wendy's.

Moving ahead twenty years in six months
My city always had a Wendy's. We had two, actually. Just six months ago, both locations closed as the franchisee of 32 years walked away from what was becoming a financially troubled business. Less than six months later, a new Wendy's restaurant opened at the same site as one of the original locations. The location and the name were the only things that remained the same between the original restaurant and the new one.

In stark contrast with the prior establishment, the new Wendy's was bright, clean, modern, busy, and more expensive. The brightness, cleanliness, and modern look all came at a higher expense. However, it seemed customers were willing to pay the higher prices. This may quickly pay off for not only the new franchisee, but for the entire Wendy's Company as well as it works on an extensive re-branding.

The 'Image Activation' program being implemented at Wendy's restaurants across the country is part of an on-going initiative that started with a new Wendy's girl as the company's icon. In any case, the re-branding has progressed beyond the company logo to become a Taco Bell-esque -- owned by Yum! Brands (NYSE:YUM)-- transformation into a more fast-casual setting with a modern flair.

Will it work?
The transformation is drawing attention, but the response has not been overwhelmingly positive as some consumers miss the Wendy's of old and the traditional, family feel that Dave Thomas established over the years.

During its own re-branding initiative, Taco Bell made a natural transition from outdated to modern. While the Image Activation goals of Wendy's include many of the same goals, the challenge for the company will be greater than that for Taco Bell because it needs to make the transition while retaining the positive image and feel that is associated with its brand.

Taco Bell, on the other hand, felt a need to break free of its image as the quintessential, low-cost fast-food restaurant when it released its Cantina Bell menu items and remodeled its stores. While it has since drawn back slightly from its all-in approach of challenging Chipotle and embraced its original market with the Doritos partnership, Taco Bell's re-branding at the very least provided the impetus for a much-needed store remodeling.

Many of the existing Wendy's restaurants are in dire need of remodeling or, as was the case in my hometown, a complete demolition and rebuilding, but the new buildings and the new branding must still hold onto the Wendy's values that were associated with the now-replaced logo and building design. Personally, I didn't get the same feeling when I walked through the door of the building that sported the new company look, but the long line waiting to order suggested it might not matter.

What really happened
Nostalgia for Dave Thomas and the Wendy's of old aside, the changes being made by the Wendy's Company are necessary and great for investors. It's not so much an issue of what the heck happened to Wendy's, it's about what's currently happening. What's happening is that Wendy's is making a much overdue transition from 'old fashioned hamburgers' to new restaurants that resonate with today's diners. The modern look may come with a slightly higher price tag for franchisees and consumers alike, but so long as Wendy's can gradually draw more customers through its doors, the changes should help the company grow.

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Shamus Funk has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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