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Wendy's (WEN +3.03%) knows what it's doing. It has generated more interest from consumers and investors than McDonald's and Burger King Worldwide (BKW +0.00%) as of late, which has everything to do with its new strategy. Not only has Wendy's undergone a brand transformation with newly remodeled restaurants and a redesigned logo, but it has also implemented a highly successful strategy with limited-time menu offerings.
Effective strategy
The Pretzel Burger was a huge success for Wendy's, having played a big role in driving third-quarter domestic comps sales up 3.2% year-over-year at company-owned restaurants and 3.1% at domestic franchised restaurants. In fact, the Pretzel Burger was so popular that you might not have even noticed Wendy's promoting the Flatbread Grilled Chicken sandwich in August or the Pretzel Pub Chicken sandwich in October.
The primary reason for the popularity of the Pretzel Burger was the higher quality of bread. This then led to a buzz across social media platforms, which in turn drove the popularity of this unexpected limited-time offering.
While some people ventured off to Wendy's for the first time in a long time -- or ever -- thanks to the Pretzel Burger, it also helped Wendy's in another way. Other customers who would visit Wendy's with the intention of ordering off of the dollar menu would notice the Pretzel Burger and end up going for it instead, paying a premium price of $4.69.
Quality test
Michael Ferraro (of the Delicatessen Restaurant, Beacon Restaurant, Mercer Kitchen, and The Biltmore Room) is no stranger to comfort food, which is why he was brought in for a live taste test on ABC News back in October.
He was first presented with Dunkin' Brands Group (DNKN +0.00%) Glazed Donut Breakfast sandwich. As he sunk his teeth into this sweet and salty concoction, you could tell by his facial expression that he would have rather been elsewhere. He rated the flavor profile as fair but the execution as poor, citing sogginess as the primary culprit. Fortunately, Dunkin' Donuts relies more heavily on coffee and (to a lesser extent) its traditional donuts. Dunkin' Donuts has been adding healthier menu items, but this certainly wouldn't be an example of that.
Next up for Ferraro: Burger King's French Fry Burger. This is basically a burger with a few French fries stuck in the middle. Innovative might not be the best way to describe this particular menu item. Fortunately, Burger King also launched Satisfries, which received a great deal of media attention. As far as the French Fry Burger is concerned, Ferraro was once again disappointed and once again used the word "soggy."
Ferraro was more impressed with Wendy's Pretzel Burger. He referred to it as the best looking of the bunch and stated that it tasted fresher than the other items on the table before him.
As far as Taco Bell's Fiery Doritos Locos Taco, Ferraro succinctly stated that he liked the nacho flavor concept, but that Doritos taste better in the store.
Winner: Wendy's.
Looking ahead
Wendy's plans on using higher-quality ingredients across the board going forward, and this doesn't just pertain to bread. For instance, Wendy's current limited-time offering, the Ciabatta Bacon Cheeseburger, doesn't just offer higher-quality bread than what you would find at McDoanld's. It also features Asiago cheese and applewood-smoked bacon. The burger still comes in at 670 calories, however, with 4 grams of fiber and 32 grams of protein.
Tastiest investment?
From an investment perspective, Wendy's is expensive and trades at 98 times earnings. For some perspective, the aforementioned Burger King and Dunkin' Brands trade at 43 and 37 times earnings, respectively.
Wendy's and Dunkin' Brands look impressive from a comps standpoint. Wendy's anticipates long-term comps growth of 3%, and Dunkin' Brands recently reported fourth-quarter comps of 3.5% as well as fiscal-year 2013 comps growth of 3.4%. Burger King, on the other hand, saw comps improve 1.7% . When you combine these numbers with current valuations, it makes Dunkin' Brands appealing. That shouldn't exclude Wendy's as a potential investment option, however.
The Foolish takeaway
Wendy's intends to continue using higher-quality ingredients than its peers, which will undoubtedly lead to more consumer interest. The term "fast food" is frowned upon these days, and if consumers want something quick, healthier (to an extent), convenient, and affordable, then many of them are going to opt for the best available option. In this case, that option would be Wendy's.
