McDonald’s has identified its next big worry: Wendy’s.
“This is the face of the enemy over the next 18 months,” correspondence recently distributed to McDonald’s Corp.’s franchisees asserts, in highlighting a series of potential problems.
The reasons behind that conclusion, as laid out in a document that Dow Jones Newswires reviewed, range from Wendy’s International Inc.’s forthcoming entry into the breakfast business – McDonald’s most profitable area – to a battle over chicken sandwiches and to the belief that Wendy’s intends to vigorously pursue young customers.
Looking at the numbers, one might wonder why Oak Brook, Ill.-based McDonald’s is worried about Wendy’s. It has six times the market capitalization of Wendy’s – $42.7 billion compared with $7.1 billion, and more than three times the number of restaurants.
Still, recent speculation about value creation at Wendy’s has propelled its stock, and Wendy’s trailing price/earnings ratio is nearly twice that of McDonald’s, 31.9 times compared with 17.4 times.
Last week’s sudden resignation of Wendy’s Chairman and Chief Executive Jack Schuessler might well alter the agenda at the nation’s No. 3 hamburger chain.
But with an activist board and increased investor pressure to perform, the person who takes over at Wendy’s has little choice but to find ways to re-ignite sales and regain market share – and that means taking on McDonald’s.
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