Wendy’s new CEO wants the same thing that the old CEO did: More restaurants. The best way to do that is to ensure the restaurants make good profits.
The Dublin, Ohio-based burger chain took a step in the right direction in the first quarter. Despite a mere 0.6% increase in U.S. same-store sales in the quarter, Wendy’s operators increased their per-store EBITDA by 9% in the period, executives said. In Canada, that figure was up by 25%.
“The big conversation that we’re having with our franchisees is driving restaurant-level profitability,” CEO Kirk Tanner told analysts on Thursday. “If we can expand margins by operating more efficiently, driving levels of productivity, those are meaningful partnerships that we are working on with our franchisees. That’s something we’re both in the boat, rowing together on, because we feel that will generate a lot of momentum for our future.”
Wendy’s operates just more than 6,000 locations in the U.S. and another 1,200 locations outside the U.S. But it has long believed, regardless of who sat at the top, that it should have more than that.
The company under previous CEO Todd Penegor was eager to develop and at one point had aggressive plans to expand in ghost kitchens, along with traditional locations, only to eliminate those plans when they didn’t do well. But the brand also put in place various incentive plans designed to encourage operators to open restaurants.
That effort has yet to fully take, at least in the U.S. Wendy’s opened just 36 net new locations in 2023, despite generally strong performance and average unit volumes that now exceed $2 million, according to data from Technomic. It is working better internationally, where unit count grew 10%. That helped fuel 2% total system unit growth last year to just more than 7,200 locations.
Tanner, in his second call as Wendy’s CEO, said that the company plans to review “every aspect of the business” in the coming months to develop a plan for the brand over the short and long term. The company’s three goals are largely aimed at driving sales and profitability, paving the way for new unit growth.
Wendy’s expects unit growth of “north of 2%.” But that growth will accelerate next year to 3% to 4%, Tanner said.
“The long-term for us is to build on that profitability,” he said, noting that the brand expects 30% of new units coming from the U.S., with 70% outside the U.S. “There’s still a lot of runway both here in the U.S. and, of course, internationally,” Tanner said.
Average unit volumes on the company’s new restaurant prototype are also stronger than the old prototype, which should help those unit economics. “You’ll see us continue to invest in platforms with our franchisees to accelerate that,” Tanner said.
Building that profitability will depend in large part on building sales. Wendy’s same-store sales last quarter accelerated 100 basis points on a two-year basis in the U.S. compared with the fourth quarter, and 120 basis points globally.
But the sales came from price and not traffic, reflecting broad-based industry concerns that high prices and inflation are turning off consumers.
Wendy’s believes its existing value offers, such as the Biggie Bag platform, give it a leg up in an environment like this. “We’re well positioned to deliver on value,” Tanner said. “But it’s a balance for us. If you look across our menu, go from premium, fresh, all the way to value propositions.”
A lot of the chain’s sales came through digital channels, thanks in part to Wendy’s March Madness promotion that drove membership in the company’s loyalty program to more than 6 million.
That drove digital sales to 16% in the quarter.
Breakfast also did well for the brand, thanks to the introduction of the Breakfast Burrito, the Cinnabon pull apart and the 2-for-$3 Biggie bundle. Wendy’s also spent a lot of time marketing the daypart, where sales grew in the high single digits year over year.
Wendy’s expects that momentum to continue. “The No. 1 excitement is building the daypart of breakfast,” Tanner said. “This gives a lot back to franchisees. It allows us to build out and use the restaurant, use the labor model, and build out a profitable daypart. We still have a lot of potential.”
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