Breakfast at Wendy's: Strike Three?

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Wendy's/Arby's (NYSE: WEN  ) always has to be different. The Wendy's brand is well-known for its strange, square-shaped burger patties, for example. It's also pretty much the only major fast-food joint without a breakfast menu.

The patties may be a harmless eccentricity, but the lack of a breakfast menu has put Wendy's in a seriously bad position, as this part of the day is the fastest growing in the industry, and the company's major competitors are taking steps to leave little market share for this red-headed stepchild.

Fastest is an understatement
Breakfast is actually the only growing part of the day for this industry. For the past five years, breakfast traffic has grown by 2% annually, while lunch has seen no growth and dinner has declined by 2% each year. Clearly it's a mealtime market restaurants would want to target. Even Starbucks (Nasdaq: SBUX  ) added a line of breakfast sandwiches to capture some of that traffic, prompting McDonald's (NYSE: MCD  ) to develop a line of espresso drinks in response. Jack in the Box (Nasdaq: JACK  ) and Burger King also expanded their breakfast menus this year, with Jack adding a grilled breakfast sandwich and Kona coffee, while the King debuted a brunch menu including nonalcoholic mimosas and Seattle's Best coffee.

But then there's Wendy's
As all this was happening, Wendy's changed its menu, too -- by removing breakfast after three years of trying to get customers interested, a decision that cost the company same-store sales. The company had a similar failure in the '80s. And now? It wants to go back for thirds.

Last time, then-CEO Jack Schuessler said Wendy's offering couldn't be a "me-too" breakfast, but that's exactly what the previous breakfast became. The latest version of Wendy's morning meal sounds different, with unique items such as a grilled panini egg sandwich, fresh fruit, and premium coffee.

The company is testing the menu now in a few key markets, with plans for a systemwide rollout a full year from now. By comparison, it took Jamba (Nasdaq: JMBA  ) , a much smaller company with fewer resources, about half that time to test and launch its hot drinks platform.

A year is a long time to be noncompetitive in a growing segment, and if this endeavor is another flop, it will be a big waste of the company's time and resources. With the company raising the dividend 33% even in the face of negative same-store sales at its Wendy's brand in the latest quarter, the company should hope the third time's the charm for this growth driver.

Fool contributor Jacob Roche owns shares of Jamba and call diagonals on Starbucks but holds no other position in the companies mentioned. Starbucks is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Jack in the Box. 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.

Read/Post Comments (2) | Recommend This Article (5)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 01, 2010, at 10:45 PM, dpc2112 wrote:

    They should strongly consider spending their time and resources on updating their tired old restaurants. Most have seen better days. The layout and decor hasn't significantly changed in over 30 years. Take a cue from Mcdonald's and make your restaurants more welcoming and comfortable instead of a square room with a bunch of uncomfortable chairs and small tables. Hire some landscapers to make the outside more appealing so that I'll want to come in. Yes, I used to love Wendy's, but there are more appealing options out there now.

  • Report this Comment On December 02, 2010, at 8:59 AM, exdividendday wrote:

    I wouldn’t' buy WEN. There so many stocks acting as restaurant operator more successful as WEN. Here is a table of 14 restaurant stocks with some fundamentals:

    The average dividend-yield amounts to 0.97 percent while the average P/E ratio is 23.03.

    I would be long for MCD, SBUX, YUM, DRI. You?

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