Baja Fresh Model Flawed from the Start

Implications: The restaurant model developed by Baja Fresh is the bigger issue regarding the ultimate loss Wendy's sustained on the sale to David Kim for roughly $31 million.

Wendy's and other fast food operators have shown an inability to profitably grow chains with differing models, most notably those operating in the quick casual segment.
 
Chains that have shone strong value growth have done so through strong same store sales growth based on sound strategic operations.

Analysis: To truly understand the issue at the heart of the nearly $250 million loss sustained by Wendy's on the sale of Baja Fresh, one must focus on the core issue of strategy.

The quick casual restaurant segment has enjoyed tremendous success due to a number of key operational strategies.  Key players like Chipotle Mexican Grill and Panera Bread have focused on mainstream offerings made with high quality ingredients that are prepared in front of the consumer in a relatively short period of time (as compared to the QSR segment).

Baja Fresh's ultimate slowdown in same store growth was driven by its disjointed strategy as opposed to the entrenchment of other competitors such as Chipotle in the Midwest.  Baja Fresh prepares the food out of site of the consumer and has a much more varied menu feeling more like an expensive QSR than an on-trend quick casual concept.

Wendy's decision to divest of the business despite the large loss demonstrates once again quick service chains are best served investing shareholders money in their core strength, running fast food restaurants.  Recently, Jack in the Box hamburger chain canceled an in-market test of its own quick-casual theme entitled JBX Grill.  The company reported third quarter earnings of $27.8 million, nearly 20% growth over the previous year.

Lost in many M&A deals are the keys to business strategy and the real reasons for business performance.  In this case at least Wendy's (driven by key shareholders) has realized that they are better served focusing on their core.