Can Peltz save Wendy's?

It might not seem like the wisest move: In a week when coffee giant Starbucks admitted it was suffering from the weakest trading environment in its 37-year history – its shares plummeted 11 per cent to a four-year low of $15.90 last Thursday – Triarc CEO Nelson Peltz announced that his company will acquire struggling coffee-and-doughnut chain, Wendy's.

The deal, worth about $US2.9 billion, includes the including the assumption of long-term debt.

But while Wendy's isn't the most financially appetising company right now, "don't question Nelson Peltz's taste," says Andrew Farrell in Forbes. "The billionaire has a long history of turning around struggling food-and-drink players."

Peltz has long coveted the ubiquitous chain, says Farrell, making his play for it in July 2007. Even before that, the renowned activist investor used a Wendy's stake to push a turnaround. He convinced the company to spin off coffee and doughnut chain Tim Hortons and got some of his handpicked candidates on Wendy's board.
Certainly, Wendy's could use some help. Its shares are down by 21.4 per cent over the past year, thanks to brutal competition, tightened consumer spending and rising commodity costs.

And then there was the infamous finger incident of 2005, says Farrell; when a couple claimed to have found a severed digit in a bowl of Wendy's chili. It turned out to be a hoax – the couple were sentenced to prison for attempting to extort money from the fast-food chain – but the damage was done, tarnishing the company's image and hurting sales.

Wendy's has suffered from an identity crisis since founder Dave Thomas died in 2002, says Ben Levisohn in BusinessWeek. Without the man who appeared in over 800 Wendy's commercials between 1989 and 2002, the company's ad campaigns have been lacklustre at best, especially compared to McDonald's and Burger King.

Yet another campaign fizzled in January when Wendy's replaced "That's Right," which had failed to boost sales, with "Waaaay Better Than Fast Food." The company has also failed to keep up with industry trends, like boosting growth by focusing on breakfast and value menus.

While McDonald's spent the last US summer focused on making its franchises a convenient stop on the morning commute with its new and improved coffee, Wendy's served breakfast at only 500 of its 6,000-plus franchises, says Levisohn.

Nevertheless, if anyone can resurrect Wendy's, Peltz is a good bet, says Farrell. The world's 897th wealthiest person, he has made a good deal of his $US1.3 billion fortune through food and beverage companies.

He got his start by building his family's frozen food business into a major distributor. And his crowning achievement was buying drink maker Snapple for $300 million and reselling it for over $1 billion just a few years later.

He owns stakes in Cheesecake Factory and Heinz. And in 2007 he bought a 3 per cent share of Cadbury Schweppes, which is thought to have influenced the spin-off of Cadbury Schweppes Americas Beverages from the company's confectionary group.

And in 2007, his hedge fund, Trian Investments, quietly spent around $1.8 billion on a 3 per cent share of Kraft Foods, owner of Nabisco, Maxwell House, Oscar Mayer and scores of other famous brands.

If shareholders approve the Wendy's sale, one of Peltz's first moves will be to integrate Wendy's with Triarc's other chain, Arby's, to form America's third-largest fast-food chain, says Emily Bryson York in AdAge.com.

Triarc CEO Roland Smith, who is taking on the same role at Wendy's, has promised more focus on breakfast and snacking, as well as a shift in advertising to emphasise quality and target consumers considerably older than Wendy's previous target.

Breakfast has been a sticky issue at Wendy's, says Bryson York, in part because Thomas never wanted to serve it. And it is indicative of a bigger problem: New menu platforms haven't been working.

Wendy's Frescata line, a collection of premium cold-cut sandwiches, tanked in 2006. One franchisee noted that Wendy's innovation was once a badge of honour. Now the chain is scrambling to catch up on key areas such as breakfast, coffee and wraps.

But if history is any teacher, Smith's planned shifts could take a while, says Bryson York. After buying Arby's in 1993, Triarc didn't make a significant menu change until 2001, when it added Fresh Market sandwiches, and it didn't change agencies for more than 11 years. What Triarc did do, however, was to boost Arby's measured-media outlay nearly 50 per cent to $44 million in a three-year period.

Food billionaire to buy Wendy's, Andrew Farrell, Forbes

Will Triarc save Wendy's?, Ben Levisohn, BusinessWeek

Whither Wendy's under Nelson Peltz?, AdAge.com