Clearance sale: Baja Fresh goes for $31 million

Sarah Gardner Oct 12, 2006

KAI RYSSDAL: Wendy’s announced today it’s slicing Baja Fresh off the menu. The nation’s number three hamburger joint’s selling its Baja Fresh Mexican Grill chain — $31 million was the asking price. Which can only make you say, where’s the beef? Wendy’s paid almost nine times that when it bought Baja Fresh back in 2002. Accountants hate it when that happens. Sarah Gardner reports on how Baja Fresh went stale.

SARAH GARDNER: When Wendy’s bought California-based Baja Fresh for $275 million, “fast-casual” was all the rage. Restaurants like Panera and Qdoba were creating buzz. These chains offered quick service but higher quality, somewhat pricier fare than your basic fast-food outlet. But when Wendy’s tried to take Baja Fresh national, it met head-on with a spicy rival — Chipotle. Ron Paul is president of the research firm Technomic.

RON PAUL:“Chipotle started in Denver and was moving into the Midwest and other eastern markets well ahead of Baja, and when Baja tried to enter those markets, they just weren’t able to compete.”

Baja Fresh suddenly wasn’t so appetizing. Outlets closed down. Wendy’s wrote off nearly $200 million of the chain’s value in 2004 alone. And Wall Street analysts who had touted the acquisition as a good fit for Wendy’s portfolio had to eat their words. Wally Butkus at Restaurant Research says Baja’s complicated menu didn’t help.

WALLY BUTKUS:“With Baja Fresh, you go up to the counter and place your order, then they prepare the food and then call you up to come get it. I think the service times are slower.”

Wendy’s Mexican adventure may have given it indigestion but analysts say the fast-food chain will recover. Third-quarter sales at Wendy’s outlets were up. And the Ohio-based company said that selling Baja Fresh, as well as a recent spin-off of the Tim Hortons donut chain, would allow it to “sharpen its focus” on the Wendy’s brand.

Good-bye bean burritos. Welcome back square burgers.

I’m Sarah Gardner for Marketplace.

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