UN Unilever NV

Arby's may soon be selling sauces, salads, lunch meats and other packaged products in supermarket aisles.

Arby's, the struggling sandwich chain owned by Wendy's/Arby's Group Inc. (WEN), is in the early stages of "exploring brand extension licensing," Arby's spokeswoman Cathie Koch said Friday. The company recently started working with Atlanta-based licensing firm Nancy Bailey & Associates Inc., which has represented brands like Procter & Gamble Co.'s (PG) Tide and Mr. Clean and Energizer Holdings Inc. (ENR), to approach food makers willing to bring Arby's branded products to supermarkets.

Arby's has sold some sauces in the past at its restaurants, but it is now looking to make a deeper foray into licensing, joining a number of restaurant companies seeking new revenue streams by selling their products outside the restaurants.

We are "always looking for opportunities to promote the Arby's brand," Koch said.

Separately, Wendy's/Arby's shares were up 16 cents, or 3.7%, at $4.50, after the company's largest shareholder, Nelson Peltz, said late Thursday that he been approached about a possible acquisition that involves the Wendy's/Arby's Group.

Licensing products for sale outside of restaurants can be tricky, with the greatest fear being that restaurants will miss out on customer visits and sales. But licensing is typically a highly profitable extension, because manufacturers tend to bear the manufacturing and marketing costs, while the restaurant company collects a portion of sales.

The model could run into problems with a franchise model like Arby's, as franchisees may lose sales to supermarkets and have nothing to show for it in their registers.

Several chains have recently explored licensing. Burger King Holdings Inc. (BKC) is now selling microwaveable fries under a deal with ConAgra Foods Inc. (CAG), while casual-dining restaurant P.F. Chang's China Bistro Inc. (PFCB) has developed a line of frozen entrees with Unilever PLC (UL, ULVR.LN). Starbucks Corp. (SBUX), meanwhile, is trying to grow sales of packaged coffee and its instant coffee product Via in supermarkets.

Brand licensing agents say that consumers won't necessarily substitute a visit to a restaurant by eating the chain's frozen meal at home. Instead, the brand extension gives restaurants a chance to get a portion of the money that a consumer would have spent on a frozen meal.

"Consumers don't confuse the at-home eating experience with the out-of-the-house eating experience," said Bill Cross, vice president of restaurant and food brand licensing at Broad Street Licensing Group.

Wendy's and Arby's were brought together in a 2008 merger. While Wendy's sales have stabilized, Arby's have lagged badly, with one analyst calling its recent sales some of the worst in modern restaurant memory. Arby's systemwide same-store sales fell 11.5% in the first quarter on top of an 8.7% decline in the year-ago period.

Wendy's/Arby's management expects Arby's same-store sales to be negative this year, with declines moderating, but the turnaround is up against formidable challenges as the brand tries to remain relevant.

High unemployment continues to be a headwind for Arby's. It's also trying to attract customers with a new $1 menu, but that could uproot the chain's business model that has relied on selling premium sandwiches.

Investors also worry about the effect the steep sales declines are having on franchisees. Wendy's/Arby's says about 10% of Arby's franchisees are struggling with high debt loads, and the company is speaking with their banks and landlords to prevent operators from having to close stores.

-By Paul Ziobro, Dow Jones Newswires; 212-416-2194; paul.ziobro@dowjones.com

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