Chicken Fries and Pretzel Buns – Fast-Food Salvation for BKW, WEN?

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Burger King Worldwide (BKW) is ditching the healthier version of its French fries just 11 months after the menu item’s debut, according to a report in The Wall Street Journal.

Burger King Worldwide NYSE:BKWOnce billed as a U.S. and Canadian “menu pillar” by Burger King in its annual report, “Satisfries,” a low-calorie version of French fries, were supposed to drive sales and foot traffic. Now, only about one-third of franchisees say the fries are worth their weight in salt, and even those locations will be phasing out the item.

But Burger King isn’t leaving its customers completely unsatis … fried.

BKW is reintroducing an old favorite — Chicken Fries, which exited the menu in 2012 — for a limited time. It’s a similar strategy to that adopted by fast-food rival Wendy’s (WEN), which earlier this summer brought back the wildly popular pretzel bun … though in this case, it’s coming back on a permanent basis.

Both fast-food companies could use a boost in interest — WEN stock is down 6.5% year-to-date, and while BKW stock actually is outperforming the market at 15% gains this year, most of that came early, and the stock has flat-lined for months and comparable-store sales are in need of a jolt.

The question is: Can these new products really shake up BKW and WEN?

Out of the Frying Pan …

Apparently if Americans are going to eat fries, they’re going to do it the tasty way. The lower-calorie, lower-fat combination just wasn’t cutting it.

At first, Satisfries made a splash, driving last year’s fourth-quarter sales higher. But that’s the problem with limited-time promotions — the excitement surrounding them can just as fleeting.

In the recently reported second quarter, it was the BBQ Bacon Whopper and the Extra Long BBQ Cheeseburger (the latter is a new menu item) that helped to drive fundamentals higher. Neither is an ideal pairing with diet fries.

But you can’t blame BKW for trying. Burger King depends on its value deals and limited-time offers combined with its core menu “to drive sales and traffic,” according to its 2013 annual report.

Luckily, it’s got chicken fries waiting in the wings, which according to anecdotal evidence were a fan favorite from 2005-12.

bkw compsChicken fries are only being introduced in the U.S., but that has been BKW’s weak spot for comparable sales anyway. While comps advanced in the second quarter, they were up less than half a percent in the U.S. and Canada.

So, Burger King is hoping the chicken fries will do what the Satisfries could not — drive U.S. comp sales significantly higher.

Its strategy is to introduce promotional items that aren’t overly taxing on the restaurant locations, which should keep the lines moving. For example, last quarter BKW launched four new items, of which only one required a new stock-keeping unit, according to the earnings call.

Meanwhile, Wendy’s is hoping its recent decision to play the pretzel bun card will revitalize its stock. After all, the pretzel bun was a smash hit last year. From a Wendy’s press release:

“Sales of these sandwiches drove more than a three percent increase in same-restaurant sales at Wendy’s North America in both the third and fourth quarters of last year.”

And while second same-restaurant sales advanced 3.9%, the company suffered a 19.5% year-over-year revenue decline in Q2 amid the sale of hundreds of company-owned restaurants to franchisees.

It’s too early to tell whether the pretzel bun will unlock gains, and Wendy’s has some other new items in the pipeline. But the reintroduction of an old fave comes at a good time, when Wendy’s will be up against tough comps from last year.

Wendy’s can use all the short-term help it can get as it pursues large-scale initiatives such as selling its company-owned stores to franchisees, which won’t be accretive to earnings for a while.

WEN has other potential catalysts in the works, too. For instance, by the end of the year, all Wendy’s customers should be able to pay for their pretzel bun burgers from their mobile devices. Burger King has been building its digital platform, too.

Bottom Line

If Burger King’s and Wendy’s strategies are successful in driving sales higher this time, then chances are both BKW and WEN will see some upside soon, as the market tends to celebrate stellar same-store sales performance. And fortunately, they’ve got history on their sides — both the pretzel bun and chicken fries have good track records.

The trick to perpetuating those gains, however, is keeping that menu-item pipeline full of innovative products that resonate with customers. That’s something only time will tell, and that investors in BKW and WEN stock must monitor.

As of this writing, Gerelyn Terzo did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/08/chicken-fries-pretzel-buns-bkw-wen-stock/.

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