Fast-Food Face-Off

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Having learned its lesson with salad bars, Wendy's is trying to give consumers "choices along the whole continuum of health," Schuessler says. But he isn't willing to go all out in pursuit of the bad-boy burger. (Although the Classic Triple features three-quarters of a pound of beef.) "Every company has to ask themselves, Are you going to be relevant to the consumer tomorrow?"

To keep growing, fast-food chains have to offer new reasons for people to come into the store. That's what Wendy's has always done best. It will have a chance to prove itself again later this year when it unveils its Frescata cold sandwiches. The Frescata line uses high-quality meat and focaccia bread developed with the artisanal bakery La Brea. Wendy's has a financial relationship with La Brea through the Canadian company Tim Hortons, a coffee and bakery chain that Wendy's bought in 1995. That's one reason Schuessler plans to hold onto Tim's, despite pressure from some hedge funds to spin it off. The bread gets its final baking in the restaurants, a technique that Meyer of CSFB says will be harder for other companies to copy than earlier innovations were.

Wendy's is also using the Tim's expertise in baked goods to experiment with breakfast, a category the chain hasn't touched for 20 years. Its first try was a disaster. "It was expensive, and it wasn't portable," Schuessler says. Since that experience left such a bad taste, Meyer says, Wendy's will move cautiously here. The first breakfast items will appear, at the earliest, in 2007.

Of course, now that the game is a little hotter, Wendy's will have to pick up the pace in introducing other new products. "They've always been very conservative in testing and rolling out product news," Meyer says, sometimes taking years to develop and test a single new sandwich. "They have to get more things in the pipeline." It may take a little while, but she is optimistic that Wendy's will restore its reputation as a fast-food innovator. "That's their bread and butter," she says. It now comes with some healthy competition on the side.