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    Wendy's Sees McDonald's Fresh Beef as an Opportunity

  • The burger chain says it is seeing no impact from McDonald's change so far.

    Wendy's
    Wendy's Southwest Avocado Chicken is one of its recent innovative menu changes.

    It isn’t every day that a chief executive officer tells a call full of investors and analysts to “get out and look on Twitter.” But there might not be a better place to see how Wendy’s really feels about McDonald’s decision to tout fresh beef on its menus.

    From a figures angle, Wendy’s president and CEO Todd Penegor said in a May 9 conference call that the burger chain has seen essentially zero impact, positive or negative, from McDonald’s Quarter Pounder initiative. The move has done something else for the brand, however.

    “It does give us a platform to continue to tell our story, right? That we've been fresh never frozen North American beef in every restaurant, across all of our hamburger lines, every single day for almost 50 years,” he said.

    This battle is still in the early stages. McDonald’s, while the message has been out for months, just recently turned on the national marketing push. It’s a contest Wendy’s doesn’t mind pulling up a chair to.

    “We've seen that time and again in media and social media dialogue that it comes back to, well, Wendy's are the folks that really own fresh across their entire lineup,” Penegor said. “And we'll keep screaming that from the rooftops and making sure that we hold others in check on what's really happening in the restaurant—do they provide fresh on everything, every day in every restaurant?”

    Penegor brought up Wendy’s comfortable standing in the fast-food wars several times during Wednesday’s call, which recapped the company’s first-quarter earnings. The chain posted same-store sales gains of 1.6 percent in North America, giving Wendy’s its 21st consecutive quarter of growth. So while not robust in number, consistent given that it’s built off steady success. Wendy’s two-year basis amounts to 3.2 percent growth, and this quarter included a 50 basis-point impact from adverse weather.

    Penegor said Wendy’s, according to data from The NPD Group, gained traffic share in the quick-service burger category in the first quarter, which is the company’s 10th straight quarter of holding or gaining share. It also outperformed the sandwich category for each of the 13 weeks.

    Adweek recently named Wendy’s its Hottest Digital Marketer, “making it clear that Wendy's is resonating with consumers and differentiating our brand story in powerful ways. We even dropped a mixtape, which I hope you enjoyed, prior to our call this morning,” Penegor said.

    Wendy’s opened 33 new restaurants (16 in America) in the quarter. Wendy’s actually ended up with a net loss of nine units in North America. Penegor said this was “due to the pacing and sequencing of restaurant openings and closures within the year.”

    He added that new stores are opening with average-unit volumes of $1.8 million, while the closures were hovering around $1.1 million.

    Global systemwide sales continued to grow faster than same-store sales thanks to new development. International systemwide sales lifted 13.7 percent in the quarter, year-over-year. North America sales hiked 2.8 percent compared to the 1.6 percent same-store sales number. Globally, Wendy’s sales were up 3.3 percent.

    Wendy’s progressed on its Image Activation plan—a remodeling effort that’s contributing about 60 basis points to same-store sales. Forty-four percent of the global system is updated, a percentage point higher than end of 2017. Wendy’s said it plans to reimage about 10 percent of its global system in fiscal 2018.

    As for how Wendy’s is building its comps, especially amid a challenging, value-crazed burger category, Penegor said the company is sticking to its balanced marketing approach and plan to drive profitable customer counts. The year started with the expansion of the 4 for $4 platform with eight additional entrée items. The Spicy Chicken Sandwich and Dave’s Double were promoted next. “A focus on the core, with great in-restaurant execution, continues to build the Wendy's brand story around craveable and fresh offerings,” he said.

    Then back to the other side of the conversation, Wendy’s returned with a $1 Double Stack promotion. Coupled with a premium LTO—the Smoky Mushroom Bacon Cheeseburger—Penegor said the effort “drove home the power of our balanced marketing approach.”

    “Customers responded immediately to the $1 Double Stack promotion, which brought millions of new customers into our restaurants and was a meaningful contributor to our same-restaurant sales growth in the first quarter,” he added. “This also demonstrated that we can be disruptive with our fresh never frozen beef on both the value and premium side of the menu.”

    Wendy’s also drove home the fresh beef message during NCAA March Madness. The commercial took aim at McDonald’s and offered a free Dave’s Single through a mobile order that drove incremental traffic to Wendy’s app.

    The company’s technology footprint grew as Wendy’s continues to expand its DoorDash delivery coverage. About 25 percent of restaurants are covered, up from 20 percent at the end of fiscal 2017. “We continue to see incrementality, especially in the evening daypart, and higher average check sizes. We have also seen encouraging customer repeat, which speaks to the favorable customer experience, along with the appetite for convenience,” Penegor said.

    Also, since the launch of mobile offers in the fourth quarter of 2017, Wendy’s has increased its average monthly app downloads from 100,00 to 300,000. It continues to rollout mobile ordering and plans to nationally launch the platform in the future.

    Wendy’s rewards program remains in pilot. Additionally, Wendy’s installed kiosks in about 300 restaurants at the end of the first quarter. Sixty percent of company-owned stores have them in place.

    “We continue to see increased throughput during peak dayparts and higher average checks,” he said. “This leadership will drive franchisee adoption behind confidence in the business case. In addition, we now provide various options of kiosks, with some lower investment countertop models that allows us to accept cash.”

    Like delivery, kiosks are returning higher checks. About 10 percent of the orders within dine-in are happening with kiosks in stores that feature them.