Face-lift helps Wendy's overthrow Burger King

With McDonald's entrenched as No. 1, Wendy's is moving into second place.

By InvestorPlace Dec 2, 2011 1:23PM
Image: Hamburger (© BananaStock/Jupiterimages)By Jeff Reeves


McDonald's (MCD) is the 800-pound gorilla of fast food. The $100 billion company turned quick-service restaurants into a science, has more than 33,000 locations worldwide, and is a heavyweight in breakfast and beverage sales in addition to selling burgers and fries.


It's nearly impossible to knock No. 1 McDonald's from its perch. So that's why fast-food restaurant Wendy's (WEN) is instead focused on the No. 2 spot and, according to reports, has dethroned Burger King to become America's second-most-popular burger joint.


The strategy? Higher-quality food, redesigned restaurants and marketing that showed American consumers who's the best -- behind McDonald's, of course.


It may sound silly to have a goal of second place. But it's important to be realistic. McDonald's dominates the marketplace with a 49.5% share of the "limited-service burger segment" business. Consider: With just a bit of growth, MCD will do more in sales than all of its competitors combined.


In 2010, Burger King's market share in the burger biz was 13.3%, while Wendy's share was 12.8%. But thanks to healthier options -- including skin-on fries seasoned with natural sea salt as well as higher quality fare like its premium Dave's Hot 'n Juicy Cheeseburgers line -- reports indicate big gains for Wendy's.


According to a report by Janney Capital Markets released Tuesday, Wendy's likely has passed Burger King in market share this year.

 

That may be a bragging point for Wendy's -- however, the U.S. "limited-service burger segment" is only a small piece of the fast-food pie. Chipotle (CMG) has been one of the biggest growth stories of the past few years -- with shares soaring over 260% since January 2010. Wendy's stock is up less than 10% in the same period.


Also, international growth is really what's fueling American-based restaurants. Take Yum! Brands (YUM). Almost 75% of its operating profits come from abroad, including from some 3,200 KFC locations in China -- and even KFCs in Kenya! Even behemoth McDonald's has room to grow overseas, with the Golden Arches recently announcing a plan to open 700 stores in China over the next two years -- roughly one a day -- to build on its current total of 1,300 locations in the Middle Kingdom.


In short, a bigger bite out of the American burger market is nice…but not filling enough for a big restaurant stock these days.


Part of the reason restaurants like KFC and McDonald's do so well abroad is thanks to a well-followed brand in the U.S. Wendy's might be able to export its popularity later. However, with rivals like Yum! and Mickey D's already gobbling up international market share, it shouldn't focus too much on winning in the U.S. when the big profits are to be made overseas.





Jeff Reeves is the editor of InvestorPlace.com. Write him at editor@investorplace.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.


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51Comments
Dec 2, 2011 3:11PM
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Wendys burgers are better than BKs.  BK's burgers often have an aftertaste.  Their whole charbroiled thing is sort of thrown out the window when they microwave the burger to heat it up before serving it.
Dec 2, 2011 4:08PM
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I worked at McD's as a kid and still eat there way too much.  I used to love BK, but now, I hardly ever go there.  Why?  Because all of the restaurants in my area are owned by the same franchisee, and they are all in decrepit condition.  You know it's bad when the location by the college has team pictures of the mens/womens basketball team from 1995 and 1996.  It's not like they were honoring champions or anything either.  And that's just the start.  Next, BK has lost that special "taste" it used to have.  The microwaving of burgers kills me.  I hate that taste.  Wendy's has done a tremendous job upgrading its facilities and menu.  I don't mind stopping there at all. 
Dec 2, 2011 3:43PM
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Wendy's is my first choice when it comes to enduring fast food.

Bk has gone downhill due to cost, taste, and portions imo.

Dec 2, 2011 3:12PM
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Having that stupid "Burger King" king featured in their ads didn't help matters much.  May he rest in advertising hell torment!
Dec 2, 2011 4:45PM
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Wendys and Carls Jr. can beat Mcdonalds any day
Dec 2, 2011 3:26PM
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Wendy's non-microwaved burgers blow BK out of the water, BK 's burgers are dry and the buns usually hard, Hardee's is much better than BK... 
Dec 2, 2011 4:21PM
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I can only speak for the Burger King's in my area and I must say not one of them has invested a dime in interior renovations.  I know this does not make the food tastier but tiles & bathrooms with filthy grout  dating back to the 1970's era kind of makes you wonder if the kitchen has been neglected as well.  By the way, using Windex on the windows once in a while doesn't cost much & it would certainly make the customer feel like some cleaning is taking place.  It is after all a place to eat so cleanliness is a factor.
Dec 2, 2011 4:37PM
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If it wasn't for their french fries, McDonalds would be last. Their burger patties have shrunk, the pickles are almost non-existent, and the chicken mcnuggets still look and taste like chicken parts.  I prefer Wendy's over McDonald's and Subway above them all. 
Dec 2, 2011 3:33PM
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I agree That burger king is a thing of the past when they microwave the burgers before they serve them .That is sad where is the fresh food not there any more. Go to the top Wendy's you are #2 BUT COULD BE #1 SOON.
Dec 2, 2011 4:32PM
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The best burgers come from the gas grill that sits in my driveway, and the best fries come from the Fry Daddy that sits on my kitchen counter (using hand-cut white potatos or sweet potatos if I'm feeling creative).  Also, my milk shakes are way better than any fast-food joint's, and my apple pie, and my salads, and my brownies, and my everything else.  Hell, even my ketchup, mustard and salt are better.  McDonald's makes money.  I make food. 
Dec 2, 2011 7:17PM
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"The best burgers come from the gas grill that sits in my driveway, and the best fries come from the Fry Daddy that sits on my kitchen counter (using hand-cut white potatos or sweet potatos if I'm feeling creative). Also, my milk shakes are way better than any fast-food joint's, and my apple pie, and my salads, and my brownies, and my everything else. Hell, even my ketchup, mustard and salt are better. McDonald's makes money. I make food."
 
Wait a second.  You mean home cooking is better than fast food?!?!  What a strange concept.
Dec 2, 2011 4:38PM
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Wendy's by far has the most natural tasting Burgers. The reason I like Wendy's French Fries, they are thicker as you can actually taste Potatoes' and not flimsy-greasy and over salted fries as McDonald's are the worst fries I know of from any fast-food or regular restaurant. Time to pick on Burger King ... in the early days of existence they "Did it your way"  and had good Menu selection of other Sandwiches. But that was in the later 1970's and early 1980's and I have no idea why they changed strategy only to go Downwards. BK left the Burger-Fast Food market a long time ago. Back to McDonald's as I knew it during the 1970's - Great and the Ideal Stop for Kids (Grown Ups too) while making a long drive to someplace. As a kid was a nice treat using my allowance money. Okay .. I'm 51 years old and was around when these places started opening Franchises around the USA in the 1970's. It was a great time to be a kid for Junk Food Junkie. Today- the present- and also looking back All the Fast Food Joints (KFC, BK, Wendy's, McD's, Pizza Hut, Subway, Arby, etc. ) have gone down hill since around 1990 there about. So in the last 20 plus years ... Quality ,Taste and Service has been tossed out the door. It's time to go back and do it the Original Way .. Customer/Consumer gets Quality food with Satisfaction.  Wendy's is still my choice /preference  when selecting a quick meal on the road when I have little time.  Everyone ... Please stay home and fix a real home cooked meal. Save your money. Remember a healthy diet and proportions of the nutritional/ healthy Food Groups makes for a better life.  Limit your stops to Fast Food and Restaurant to only a few times a year. If you have lots of money to burn ... hire a live in Gourmet Chef and eat well.

If you're not well off financially then again time to set your priorities and cook nutritional meals at home and Save the cash for better things in life.

Dec 2, 2011 4:15PM
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So does this mean the creepy "King" has been benched by BK?
Dec 2, 2011 4:10PM
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Cannot understand why people like McDonald's. All Mickey D's food is gross!! Wendy's beats BK...but in my book Whataburger is tops!!
Dec 2, 2011 3:36PM
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It wasn't a "face-lift" that helped Wendy's... they got rid of the 800 pound albatross otherwise known as ARBY'S!!!   ARG brought Wendy's down, and as soon as the higher ups figured it out they broke up the Wendy's/Arby's Group and now it is just WEN. Smartest move they have made in the past two to three years...
Dec 2, 2011 4:31PM
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It doesn't matter who the gorilla is. They all are reducing their burger sizes, fry sizes. Soda is damn cheap to make so .25 cents is too much for a large size.

 

Poor quality, poor portions, poor service, poor preperation.......

 

 

Dec 2, 2011 6:56PM
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We have all the burger joints available and for my money, Carl's Junior is the best.  5 Guys is overpriced.  Jack 'n the Box is probably second for the variety and the price.  I teach 3 economics classes and although it's certainly not scientific, the stories the kids tell really makes me wonder how McDonalds keeps its lead.  Portions, quality and service are all down and trail virtually every other chain.  If you want a decent burger or burrito-give Carls Jr a try!
Dec 2, 2011 7:08PM
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I got a mouthfull of coffee grounds in my coffee at BK a year ago.... i haven been back since for breakfast, lunch or dinner i was so grossed out.  Wendys all the way!!
Dec 2, 2011 5:23PM
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Dave Thomas is gone now, Wendy is now on the most recent TV commercial.

Oh well!   We can pick on spokesperson's or mascots or bizarre characters for these 3 franchises.  The King and Clown are childish but wasn't meant for grown-ups and the plan was to entice children (gimmick- increase-promote sales).  Everyone wouldn't mind being King "BK" (or Queen) but young kids find Clowns "McD's" to be more entertaining and Yes !  Kids Meals with a Free Toy .... wow !!!!! plus some McD's had a Play Areas also welcoming Birthday Celebrations/ Group Parties. Last you had Ronald McDonald House foundation- charity ?  McD's has many ideas which kept them at #1.

 It could be possible one day Wendy's may be at #1 ... who knows?

 

 Dave did it the usual way with no gimmicks to sell.  In life, in person, and talked sensible.

 

The Best Fast-Food Commercial ever were the Old Ladies " Where's the Beef "? for Wendy's.

As you know .. they showed us that they  (Wendy's) uses real Beef and thick hamburger patties.

Time for a sequel ... may we have Betty White step forward please !!!!   Smile 

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