Wendy’s has waited four years to advertise its late-night business again. You could credit the pandemic’s clamp on mobility or the burger chain’s need to focus spend elsewhere, like its relaunch of breakfast, which arrived in March 2020 behind a $20 million pre-launch push. Some of that deployed toward a national rollout supported by advertising—a big change from past attempts that didn’t always appreciate the full backing of Wendy’s entire fleet. Also, naturally, Wendy’s had to race staffing, food safety, ops, digital, and other COVID accelerants up the priority ladder.
But that’s changed. Wendy’s in Q2 saw the late-night daypart generate double-digit sales growth as higher staffing allowed 90 percent of locations to remain open until midnight or later for the first time since the crisis. CEO Todd Penegor said Wednesday, as you’d expect, late-night produced higher average checks and more delivery, “which further supports the restaurant economic model.”
“We continue to see room to grow our share of this daypart versus our [quick-service restaurant] competitors and are excited to continue advertising late night during the third quarter,” Penegor told investors. “We believe the daypart will expand even further as customers come to know that Wendy's is reliably open for the high-quality late-night experience they deserve.”
Overall, Wendy’s reported U.S. same-store sales growth of 4.9 percent in Q2, comprised of about 6 percent price and negative guest counts. The chain’s two-year comp is running 7.2 percent.
Beyond advertising, though, what’s driving late-night at Wendy’s can be seen on the other side of the daypart spectrum. The chain said breakfast posted mid-single-digit growth to the highest quarterly sales lift since its March 2020 debut. BTIG analyst Peter Saleh noted increased consumer mobility—back to school, work, and simply getting on the road again after lockdowns—could translate into higher morning sales for the long-run.
“What we really want to do is make sure that there is awareness that we are open and we're consistently open, so we can build into customers' routines that we are there for them onto late-night dayparts,” Penegor said.
Penegor credited Wendy’s $3 croissant promotion as well as an ongoing strategy to raise breakfast awareness. The company launched a Frosty Cream Cold Brew lineup in late July that merges coffee with Frosty creamer and the choice of vanilla, chocolate, or caramel syrup. These hit the menu at 99 cents through Wendy’s app for a limited time. Uber Eats customers also could tack on a medium Frosty Cream Cold brew to any order over $15 free of charge from July 27 to August 2. Penegor hinted “additional menu innovation” was coming soon, and to expect a steady cadence of promotional activity designed to drive trial and repeat.
Key to both breakfast and late-night for Wendy’s is the aim to support margin. U.S. company stores posted a 200-basis point year-over-year increase last quarter to 17.3 percent.
The two dayparts pose the potential add sales without incremental labor, Penegor said.
He added the majority of Wendy’s guests who come for lunch or dinner still have not given breakfast a shot. “So that’s an opportunity at the restaurant level as we continue to focus on breakfast to let them know, why don’t you try us for breakfast tomorrow,” he said. “And we’ll continue to focus on that.”
In other terms, alongside menu innovation and trial-inducing offers, expect to see messaging across every daypart to encourage customers to return for breakfast.
A similar sentiment applies to late-night. “It is incremental,” Penegor said. “We continue to see opportunities midnight or later. We do see a big opportunity to drive delivery business as well as folks coming to our restaurant. … And the more that we drive awareness and the more that we get consumers to come to us and see that we're reliably open in the late-night daypart, the more we become part of that routine.”
Wendy’s outlined a broader consumer view Wednesday that mirrored much of what competitors have shared this earning season. Income groups above $75,000 have held, while the under $75,000 cohort softened, leading to traffic declines.
CFO Gunther Plosch said he’s in the camp of there being a “mild recession,” or perhaps none at all. “And if I’m right on that one,” he added, “it should be good for the category.”
He said net disposable income started to improve. Consumers continue to face pressures from macroeconomic forces. Yet like Plosch, Penegor feels quick service will weather the rocky environment better than most. Wendy’s saw some trade down from mid-scale casual last year, Penegor said. Those guests have stuck around.
“You’re seeing higher-income cohorts start to shift into [quick service], which is good for our brand,” he said. “And we do know the lower-income cohort, as inflation starts to moderate in the back half with all the gross income improvements they had, real income will start to improve, which could be a nice tailwind for our business.”
But all said, student loan repayments (a topic mentioned recently by multiple peers as well), and other challenges could force customers to tighten spend. “When you think about where we play on the Biggie Bag offering, we have a lot of relative value to add,” Penegor said. “So I think we're really well positioned no matter where the consumer health place for the outlook of the year.”
There’s also been a noticeable guest shift to mobile grab-and-go—customers who order and then pick up in-store at the racks Wendy’s implemented late last year. “That was one of the tools that has helped us to take some of those big delivery orders, [take] lunch and dinner out of the line and get folks to grab their food and get out of the restaurant quickly,” Penegor said.
Wendy’s development plans endured external pressures of their own. The chain forecasted 2 percent net global unit growth for 2023 and 2024, offering the caveat that permitting delays could lead to a lower result near-term. Chipotle, Texas Roadhouse, and Papa Johns mentioned similar themes on their quarterly calls.
Penegor said all U.S. stores facing permitting delays this year have secured sites. So if they don’t open this year, they’ll shift into 2024.
The main development focus for Wendy’s now, however, is into higher AUV formats. Penegor said new traditional units are opening with AUVs nearly double that of its restaurant closures. That 2–3 percent growth figure is expected to bump to 3–4 percent in 2025.
About 60 percent of Wendy’s pipeline through 2025, he added, is under development agreements.
The chain opened 41 stores in Q2 (net of 24), including its first Global Next Gen restaurant, bringing the total first-half number to 80 (net of 20).
Additionally, Wendy’s announced Wednesday it’s entered into a master franchise agreement with Flynn Restaurant Group—the world’s largest franchise operator—to develop 200 Wendy’s in the Australian market through 2034 with a combination of equity stores and sub-franchise partners.