HOW WENDY’S BOTCHED BREAKFAST : Chain Returns to Kitchen After Made-to-Order Mistake
July 1, 1985, was to be a momentous morning for Wendy’s International. Eggs were on hand for made-to-order omelets, there was French toast in the works and the coffee was hot. Following months of preparation, breakfast was ready.
With lots of hoopla and a multimillion-dollar advertising campaign, the nation’s third-largest fast-food feeder was making a splashy nationwide unveiling of its breakfast menu.
TV sets echoed with the Wendy’s advertising theme, “Only Wendy’s has breakfast like we do,” sung to the Platters’ 1950s classic “Only You.” It was official: Wendy’s was becoming an all-day restaurant chain.
Nine months later, the Ohio firm quietly retreated from the breakfast market. Today, most of the chain’s 3,450 outlets across the country are dark during the early morning hours. Only about 800 now offer breakfast, after Wendy’s decided early this year to leave the decision on breakfast up to individual stores.
Despite nearly a year of extensive testing and consumer surveys before the breakfast launch, Wendy’s hit the dreaded glitch in the fast-food business--slow service. “The biggest problem we had was a service problem,” concedes R. David Thomas, founder and senior chairman of Wendy’s.
“We made every omelet to order. . . . Omelets are more complicated. Our competitors make things up and put them under a heat lamp. . . . We just couldn’t compete with that. It was a brand-new procedure,” Thomas added. “I think we made a mistake. I don’t think our testing was as accurate as it should have been.”
Wendy’s launched breakfast after a phenomenally successful year in 1984 when its “Where’s the Beef” advertising campaign helped catapult sales 26% at all Wendy’s outlets. Unfortunately, the introduction of breakfast, besides having operational problems, coincided with an overall slowdown in fast-food sales throughout the industry.
Format Proved Cumbersome
Wendy’s had hoped to carve a niche in the breakfast market by offering such items as omelets, French toast, egg sandwiches and similar items. But the made-to-order format that built Wendy’s hamburger business proved cumbersome for hurried breakfast eaters.
“Wendy’s differentiates itself from McDonald’s and Burger King by quality,” explains Charles S. Glovsky, a senior analyst at Alex. Brown & Sons in Baltimore. “As it turned out, that was a noble goal, but customers of fast-food breakfasts stress fast first and food secondarily.”
Some Wendy’s have succeeded with the morning meal. A Wendy’s on Vermont Avenue in Los Angeles does a bustling breakfast business, and store manager Adolfo Galindo attributes the success to the fact that his Wendy’s is located within walking distance of six hospitals. But only five of the 159 Wendy’s located in the Southern California area still serve breakfast, the company says.
Executives at Wendy’s vow that the chain will soon return full swing to breakfast--the fastest-growing segment of the otherwise lackluster fast-food business. “We can say we will be back to breakfast bigger and better than ever before,” Thomas declares.
The company won’t say exactly what its breakfast bill amounts to. Overall company sales and profits were up for all of 1985 and for the first half of 1986, but the average sales per restaurant fell.
Meanwhile, Wendy’s has turned much of its attention to the business it knows best: burgers. Just last month, Wendy’s launched its new Big Classic hamburger--its first new burger product in 17 years--in hopes of touching off a new burger war. The Big Classic is taking direct aim at Burger King’s Whopper and McDonald’s McDLT. Last summer, Wendy’s introduced Crispy Chicken Nuggets to cash in on the chicken nuggets business that is expected to hit $1 billion this year.
Successful With Salad Bar
Wendy’s is not the first fast-food operator to withdraw a national product. McDonald’s took its McRib sandwich off the market. Kentucky Fried Chicken briefly added ribs to its chicken menu. And Wendy’s has been successful with some products, most notably salad bars, while others have not succeeded with the greens.
By being largely absent from breakfast, however, Wendy’s is temporarily missing out on an increasingly important meal for the fast-food business. Analyst Glovsky says that breakfast is a third major meal for fast-food chains and Wendy’s just cannot concede it to the competition.
Meanwhile, McDonald’s and Burger King are gobbling up the fast-food morning business. McDonald’s was the first to introduce breakfast a la fast food in 1973 with its Egg McMuffin. It wasn’t an immediate hit, and industry observers say McDonald’s lost money for five years before breakfast proved profitable.
Today, breakfast accounts for 15% to 20% of the chain’s sales, analysts say. McDonald’s claims that one of every four Americans who eat breakfast out eat at the Golden Arches.
At Burger King, which introduced its croissant breakfast sandwiches two years ago throughout the chain, breakfast accounts for about 10% to 15% of sales.
The two chains recently introduced new products to ward off increasing competition. In February, McDonald’s added fresh baked buttermilk biscuits and biscuit sandwiches to its Egg McMuffin and other breakfast offerings at 7,000 outlets.
Just this month, Burger King added French Toast Sticks with a dripless, maple syrup-like sauce and the Big Danish to its croissant breakfast sandwiches at 4,400 outlets.
Fast-food breakfast sales have been growing at a faster rate than morning sales at all restaurants, according to the National Restaurant Assn. For example, breakfast and morning snack sales at quick-service outlets rose 17.4% in 1985 from the year before, compared to a 7.6% increase in breakfast sales at all types of restaurants.
Back to Test Kitchens
In addition, fast-food breakfast sales accounted for about 40.7% of all breakfast sales in 1985 and is expected to continue to grow, the association said.
Wendy’s has gone back to its test kitchens with breakfast. It recently appointed corporate executive David Berlin to the newly created position of director of the breakfast program. Previously, breakfast had been handled through Wendy’s typical product-development format with responsibility divided among the marketing, product development and operations departments.
Thomas says of the new breakfast group: “All these people have to do is think and concentrate on how to compete and how to have a better breakfast.” Already, he said, Wendy’s is trying out biscuits and gravy at outlets in Little Rock, Atlanta, Memphis and Nashville. Beef and gravy is being tested in Springfield, Ohio.
Though the company has never disclosed how much money it spent to develop last year’s morning program, Wendy’s reportedly spent more than $10 million alone for an eight-week advertising blitz, according to Advertising Age, a trade publication.
The company had ambitious goals for the morning meal. It hoped to break even by its second year and be profitable by the third, said Denny Lynch, Wendy’s vice president for corporate communications.
But disappointing results led Wendy’s to make breakfast optional by March. “They couldn’t make any money,” explains Glovsky. “If they did adequate volume maybe they could have, but the ingredients were expensive and preparation was time consuming. It never earned a good return. In fact, it lost money, and to compound the problem, breakfast was stealing customers away from lunch and dinner.”
In 1985, Wendy’s overall revenue rose 19% to $1.13 billion and profits were up 11% to $76.19 million from the year before. But average sales per restaurant systemwide actually declined 2%.
1984 Was Exceptional
Company officials point out that those results followed an exceptional 1984 for Wendy’s, when revenue, including sales and franchise royalties, rose 31% and profits were up 24%.
Wendy’s high hopes for breakfast were also hurt in part by a sluggish economy that dampened fast-food sales industrywide in 1985 and continues to do so this year. In addition, its major competitors introduced new products aimed at Wendy’s customers. Both Wendy’s first-half revenue and profits were up 9% from a year ago. But average sales per Wendy’s outlet declined 9.4% in the first half from a year ago.
“We’re not real happy with it,” Thomas admits. “We’re working to resolve the problems. We are not sitting, hoping they will go away.” He points out that besides reworking breakfast and returning to hamburgers, Wendy’s is working on other things that “I’m not at liberty to disclose at this time.”
One of the problems that the company will be working on, he said, is the all-important time factor.
Thomas says the average preparation time was 1 1/2 to 2 minutes. Unlike hamburgers, which are being grilled all the time, each omelet had to be made from scratch. When batches of customers ordered the omelets in one-minute intervals, their wait would often be longer than two minutes, which did not sit well with impatient morning diners.
“The real key was that it was not a fast-food breakfast,” says Glovsky. “It was a made-to-order breakfast, where delivery times were not fast enough to create an adequate turnaround. Because the breakfast was made to order and delivery was not quick enough, there was very little drive-through business and that was absolutely critical.”
Another problem was the unusual configuration of Wendy’s counters. A typical Wendy’s has only one register and a smaller kitchen than the multi-register, bigger kitchen format of a McDonald’s or Burger King. And analysts see that as one of Wendy’s competitive pluses.
Nine Toppings for Hamburger
Wendy’s counter is designed so that a minimum number of people are needed to deliver made-to-order hamburgers within 30 seconds after receiving an order. Even so, Wendy’s claims that its system enables it to serve a maximum of 1,024 different combinations of nine toppings on its hamburgers.
Thomas pointed out that the made-to-order approach works for hamburgers because all that needs to be grilled is the meat. But the ingredients for omelets all have to be mixed before the cooking starts. That made it tough for Wendy’s to offer omelets in four different combinations: ham and cheese; ham, cheese and mushrooms; ham, cheese, onion and green peppers, and mushroom, onion and green peppers.
“What customers of fast food look for at breakfast is speed of service,” says William Trainer, an analyst at Merrill Lynch in New York. “If it isn’t there, and I think it wasn’t there typically with Wendy’s restaurants, people didn’t flock to the restaurants.”
While Wendy’s concedes the slow service, it believes that customers enjoy the high quality of its food. Ray Perry, a truck driver for Golden Grain, was recently enjoying a made-to-order ham and cheese omelet at Wendy’s on Vermont Avenue.
Perry says breakfast at Wendy’s is “above average and good. . . . The food doesn’t seem as processed, and they use genuine half-and-half milk--not a non-dairy creamer--and the jelly is of good quality. I like it because it is all cooked to order.”
Meanwhile, Wendy’s has installed some new leadership. In August, James W. Near was promoted to president and chief operating officer. He had been president and chief operating officer of a chain of restaurants called Sisters, a Wendy’s subsidiary. He succeeded Ronald Fay, 57, who said he will retire at the end of the year.
For now, Wendy’s attention seems to be on the Big Classic and its other new products. Thomas says that sales of Crispy Chicken Nuggets are going well and that the company has high hopes for the new hamburger.
The Big Classic is a quarter-pound hamburger topped with tomatoes, mayonnaise, catsup, pickles, onion and leaf lettuce on a new corn-dusted soft kaiser bun and represents Wendy’s entry into the so-called “signature” sandwich market.
Wendy’s kicked off the Big Classic last month with a national advertising campaign, “This is the good stuff,” featuring a hip new fictional character named Fuller, played by actor Scott Fuller, who plays Nick on the NBC-TV show “Family Ties.” Wendy’s also developed a set of commercials directed at black and Latino customers.
But Wendy’s will be back delivering three meals a day soon, company officials promise. “It doesn’t mean we don’t have confidence in breakfast. We’re working on new products and still (want to) maintain the highest quality in the system,” Thomas said. “We took a little step back, but we think our customers should have the best.”