"I don't think it's a hybrid. I think it's the best of both worlds," said Wendy's Chief Marketing Officer Craig Bahner inside the test kitchen at company headquarters in Dublin, Ohio.
To compete, Wendy's is adding new menu items, and rotating some in seasonally, all while maintaining what QSR Magazine says is the fastest service time in the business. When this reporter pulled off the freeway outside Columbus this week to order the newly reintroduced Pretzel Bacon Cheeseburger, order to delivery took 1 minute, 47 seconds.
The Pretzel Bacon Cheeseburger was a home run for Wendy's when it was introduced last summer as a temporary item, helping propel same-store sales growth above 3 percent for two quarters. The company sold 50 million of the burgers, but once Wendy's took it off the menu, sales growth slowed dramatically, dropping below the rate of Burger King in the first quarter.
So why not keep the burger on the menu permanently? "You don't change strategies midstream," said Bahner.
Whether the pretzel burger develops a McRib-like, cult following, Bahner said sales of the burger in its first week back on menus exceeded expectations. That was before the company launched a funny ad campaign with love songs to the burger crooned by Jon Secada and Boyz II Men.
Lori Estrada, Wendy's senior vice president of R&D, said her teams went through 30 sauces and 15 cheeses before picking one for the pretzel hit, eventually deciding on a slice of cheddar, topped with cheddar sauce plus honey mustard.
The company is testing other possible items that could go national, like a BBQ brisket burger on a cornbread bun in Jacksonville, Florida. A research report from CL King & Associates said, "The product is as or more successful at this early stage than the Pretzel Bacon Cheeseburger despite no national media ad campaign yet."
Wendy's shares nearly doubled last year, but are down slightly this year. The company has been dogged by activists urging it to join competitors like McDonald's, Burger King and Walmart, in the Fair Food program which seeks to improve wages and conditions for tomato pickers in Florida. The company has said it doesn't need to join, since all of its suppliers already participate in the program.
Meanwhile, Wendy's is expected to spend $280 million to $290 million this year on capital improvements, much of it going to remodel stores. About 85 percent of Wendy's restaurants are owned by franchisees, who are being encouraged to refurbish their stores with a newer look closer to fast casual than fast food—flat panel screens, WiFi, fireplaces.
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CL King reports that the company hopes to have more than a third of all Wendy's bearing the new look by 2017. "The millennial consumer is driving the market, in terms of purchasing power and thought leadership," said Bahner.
There's a new mobile payment system and an app that will soon have a calorie count feature. There are new salads ("Wendy's is the market leader in the United States in terms of salads"), new cheeses ("We've got habañero jack cheese there"), and lots of different buns: pretzel, brioche, ciabatta.
"Customers expect innovation," said Bahner. "Food IQ is at an all-time high, so it's up to us to meet that need with offering artisan buns or leading edge types of cheeses."
And bacon. Even on the salads.
There is a lot of bacon sprinkled throughout Wendy's menu. (Watch the clip with Bahner for more on that.) Both bacon and beef prices are sky high, yet Bahner said Wendy's has the supply chain experience and leverage to manage the costs.
The hope is to provide a menu that satisfies core customers seeking a burger and a Frosty, while luring in a new generation more concerned with nutrition and fresh ingredients.
"Our vision isn't to be the biggest but the best, and to be recognized as a leader in culinary innovation."
Is it working? Maybe with enough bacon.
—By CNBC's Jane Wells.