Edit ModuleShow Tags
Edit ModuleShow Tags


Two years later, Arby's owner gets Wendy's


The proposed combination of Arby's and Wendy's could save millions, but franchisees, others are skeptical.

Nelson Peltz will finally have his opportunity to do what he wants with Wendy's.

The activist investor whose private equity firm controls the Arby's sandwich chain bought Wendy's in late April, ending a long and often acrimonious debate over how to reinvigorate the venerable burger chain.

The question is whether the deal will ultimately succeed in putting life back into Wendy's. Neither it, nor Arby's, are exactly impressing financial analysts these days – the deal's announcement came on the same day that Wendy's released a quarterly financial report showing a stunning 72-percent drop in first-quarter income, due largely to rising costs and slumping sales.

Wendy's franchisees had a mixed reaction. Many seemed relieved the sale process appears to be ending, but others expressed concerns about combining with Arby's.

"The unknown is very scary," said Brad Honigfeld, chief executive of the Briad Group, which owns 43 Wendy's. "If someone was to look deep into the numbers of the acquirer, I don't think they'd find them any better than the current Wendy's (numbers)."

Some franchisees were indifferent. "In the short-term it will have no impact," said Kelly Durham, president of First Sun Management Corp. in South Carolina, which owns 50 Wendy's. "In the long term, there may be some impact. But that remains to be seen."

If shareholders approve it, the $2.3 billion, all-stock deal would create a 10,000-unit quick-service powerhouse with $12.5 billion in annual sales – making it the third-largest fast-food company in the world. Roland Smith, Triarc's chief executive officer, will replace Kerrii Anderson as Wendy's CEO.

Smith promised in the sale announcement to boost store-level profits, expand further internationally and continue the brand's move into breakfast. Among the more immediate steps is to improve the brand's advertising to focus on quality and the chain's iconic status – a criticism of Wendy's in recent years is that its ads focused on the wrong customers.

Various efforts over the next couple of years could generate $100 million in earnings, Smith said after the announcement. In addition, the buyers also promised to reduce overhead expenses by $60 million by combining certain corporate functions.

Despite the savings, some wondered whether an Arby's-Wendy's combination makes long-term sense.

Arby's is a competitor of Wendy's, the No. 3 burger chain. While Arby's doesn't sell burgers, many items are similar and it has often portrayed itself as an alternative to burgers. Both chains go after the same day-parts and attract consumers looking for better quality fast food. Arby's latest ads feature a "rescue brigade" that is "saving the world from ordinary fast food."

"I was a Roy Rogers franchisee when Hardee's took over and that was a complete debacle," Honigfeld said. "Operating multiple brands has proven not to be successful."

With its purchase, Triarc promised Wendy's and Arby's would be separate units. But Smith is heading up both companies, and many doubt they will act with full autonomy.

"Trust is going to be zero," said Malcolm Knapp, a New York-based restaurant consultant who has followed the merger closely. "Why would it be more than that? You're autonomous but you've got the same CEO. And Peltz is going to run the CEO. He's running both. Unless they get themselves a good CEO, I'm not sure why it would work."

Still, some franchisees were relieved the two-year fight over the future of
Wendy's appears to be over, and they hope the new owners will right the ship.

Wendy's has treaded water since founder and icon Dave Thomas died in 2002. Operating margins have fallen. Revenues began declining in late 2004 and same-store sales fell as much as 5 percent.

Investors and franchisees began clamoring for change. The loudest voice came from Peltz, of Trian Fund, which was one of the chain's largest shareholders. At Peltz's urging, Wendy's sold the struggling Baja Fresh fast-casual chain – for a fraction of its purchase price – and spun off the high-flying Tim Horton's chain.

It replaced CEO Jack Schuessler with Kerrii Anderson, closed under-performing stores, introduced new menu items like Frescata sandwiches, the Frosty Float and the Baconator and began working on breakfast. Yet the company is still struggling, with same-store sales falling in the first quarter of this year.

Wendy's put itself on the market last year and received initial interest. But much of that faded with the tightening of the credit market. In the end, observers say that the board of directors had little choice but to accept Peltz's stock offer, despite negotiations that were often difficult.

The sale angered Thomas' family members – they hammered the sale in published reports and had publicly backed an offer led by Wendy's franchisee David Karam. In some circles, the sale has taken on the air of a funeral, representing the end of Wendy's much-revered, family-like culture that began with Thomas. "It's a very painful moment right now," Knapp said. Several franchisees agreed. "It's sad that it had to come to this," one said.

Edit ModuleShow Tags
Edit ModuleShow Tags
Edit ModuleShow Tags

Development Deal Tracker Newsletter

Receive our free e-newsletter and learn what the fastest growing franchises are up to.

Edit ModuleShow Tags
Edit ModuleShow Tags Edit ModuleShow Tags

Find Us on Social Media

Edit ModuleShow Tags