Wendy’s buzzed-about return to breakfast got off to a fast start in March, right on the doorstep of COVID-19. The company’s fifth attempt at the daypart—the last coming about a decade ago—pushed domestic same-store sales to plus 16 percent in the first week of the month. Wendy’s was ready to pull the lever on a $70 million to $80 million marketing plan to raise awareness, with corporate fronting $40 million to $50 million. Additionally, Wendy’s put up $20 million pre-launch to hire 20,000 employees and give breakfast the infrastructure needed to cover the system quickly, and avoid some past pitfalls of market penetration, adoption, and profitability.

And from that small sample, it clearly worked.

But among the bevy of coronavirus impacts on restaurant operations, the morning daypart might be the swiftest and fiercest. By mid-June, more than 45 million people filed initial unemployment claims. Workers went remote. Solo occasions and morning routines evaporated as consumers replaced the daypart with meals at home or simply shifted their quarantine behavior altogether.

Yet Wendy’s hasn’t gotten off the breakfast track, instead electing to build on strong consumer response. And it’s paying off, with potential to surge if people fall back into daily routines, CEO Todd Penegor said Wednesday during the company’s Q2 recap.

Despite breakfast facing harsh pandemic pressure, he added, Wendy’s business continued to grow each month, with sales coming in at about 8 percent of total U.S. business this past period. Breakfast awareness levels remained solid at about 50 percent. “That said, we believe that we have a huge opportunity to continue to drive that number higher,” Penegor said.

In response, Wendy’s just turned on a $15 million marketing campaign in the back half of the year ($2 million has already been spent). The incremental advertising dollars will come from corporate “to further accelerate our breakfast business and capitalize on the significant momentum we have,” Penegor said.

The opportunity is clear: Wendy’s U.S. same-store sales accelerated to high-single digit growth in July, driven by breakfast and its digital business, which has doubled from 2019 levels to about 5 percent of total sales.

Here’s a look at the comps cadence in recent months:

Same-store sales for fiscal month


  • U.S.: –14 percent
  • International: –28.3 percent



  • U.S.: –1.9 percent
  • International: –15.7 percent



  • U.S.: 5.1 percent
  • International: –10.7 percent



  • U.S.: 8.2 percent
  • International: N/A


As of August 8, nearly the entire Wendy’s fleet, or 99 percent, were operational (5,869 restaurants). Internationally, the number was 945 units, or 90 percent.

In Q2, Wendy’s domestic same-store sales declined 4.4 percent versus a 1.3 percent gain in the year-ago period, while international, which has been more challenged by closure restrictions, reported a drop of 18.4 percent against a 3.9 percent lift in Q2 2019. Year to date, those numbers are down 2.3 and 10.1 percent, respectively.

Wendy’s came out of Q2 with quarterly earnings of 12 cents per share versus 18 cents last year. Revenues of $402.31 million were down from $435.35 million.

Alongside breakfast, Wendy’s will tout value over the rest of 2020 as it gains prominence amid uncertain times. The chain is going to launch a new Spicy Chicken Value Sandwich next week, Penegor said. It will be available in Wendy’s classic 4 for $4 platform.

Returning to breakfast, however, the company said it provided franchisees a sales driver they didn’t have previously—leading to its largely incremental benefit to Wendy’s base business. It’s also proven to profitable, Penegor said, especially as absolute breakfast sales dollars continue to grow.


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“We said that we were going to bring America the breakfast it deserved, and we have delivered on that promise with extremely high customer satisfaction as seen through our operational metrics,” he said. “As mobility improves, coupled with our incremental investment in marketing, we believe that this business has a ton of upside moving forward.”

As the marketing figure suggests, the real opportunity for Wendy’s centers on driving awareness as consumers leave the house again. The chain kicked off at 50 percent, despite COVID-19 detractors. Holding the figure—not growing it—has been the win so far, which speaks to the runway.

“We are seeing folks come into the breakfast daypart a little later than a normal routine would be,” Penegor said. “But we are seeing folks come to our restaurant for breakfast, nonetheless.”

Operational metrics have turned in strong, too, he added. “We’re faster. We’ve got great-tasting products. The social metrics are really strong. Folks are feeling very pleased about how our breakfast daypart is managing.”

“So we want to play to that strength and continue to create awareness,” Penegor continued.

How it’s broken down: Breakfast is driving transactions with a slightly lower check. However, it’s higher margin (why so many quick-serves chase the market share battleground at breakfast), meaning it’s playing well to the financials and economics of Wendy’s margins.

The company reported profit margins at 14.4 percent of sales at 356 corporate units in Q2. While down from 16.5 percent, year-over-year, Wendy’s gained throughout the period as efficiencies came into play, such as lower waste, utilities, maintenance, and securities from a drive-thru-centric model. Increasing restaurant-level employee pay by 10 percent during April and May drove lower turnover as well.

The company was also able to reduce breakfast breakeven by about 35 percent as it cut labor requirements, due to lower volume, and chose not to collect marketing fund contributions on breakfast sales. It suspended the initiative for 2020 with plans to restart in January 2021. Wendy’s is currently collecting royalties on breakfast sales. “We wanted to basically make sure that our franchisee base remained really interested and motivated in that daypart,” CFO Gunther Plosch said.

Previously, Wendy’s said it looked at breakfast through a three-year lens and didn’t expect the daypart to be profitable in 2020, although it figured that might change in just a year. The company predicted breakfast could generate $600 million to $800 million of system sales in 2020, equating to a 6–8 percent comp benefit and roughly $2,300 in weekly business per store. BTIG analyst Peter Saleh noted at the time Wendy’s current weekly sales assumptions ran below prior breakeven levels of about $3,000 per week for franchisees experienced in 2010–2012.

During the last breakfast attempt, with Roland Smith at the helm, Wendy’s hoped to reach 1,000 locations, or 15–16 percent of the U.S. system, by 2011. Also, to push an incremental $150,000 to $160,000 in sales that first year (or $3,000 per week, as Saleh mentioned), and $200,000 by year five. That measured to 10 percent mix heading into year 2 and 12.5 percent at the back-end.

What ended up actually happening, however, was average weekly sales closer to $2,700. Food costs also pressed pilot stores 150–200 basis points above non-breakfast units.

And, in the end, breakfast stalled somewhere around 600–700 restaurants.

That’s why the breakeven and incremental levers are so important today. Wendy’s took a far more simplistic approach this go-around with products, and designed it as a drive-thru forward model that needed just three people per restaurant to staff, with block scheduling potential to improve levels through lunch as well.

During COVID, the labor number came down and the daypart expansion proved a much-needed extra layer for operators during depressed traffic. Many chains have extended hours and dayparts to capture off-peak businesses and try to infuse extra revenue during the pandemic. Wendy’s walked in with that already in place.

The whitespace now, though, comes from capitalizing on more routines as they normalize, and just getting the word out.

To put the awareness figure in perspective, Wendy’s typically generates 25–30 percent from a typical three- to four-week LTO. So breakfast had a nice headstart, all things considered, thanks to a strong marketing stance ahead of launch.

“As mobility has improved a bit—I mean, still got a long way to go to improve—it’s certainly helped across all of our dayparts as folks got a little more comfortable going out,” Penegor said. “You had all the pantry loading early on in the quarter. I think folks are looking for some normalcy in their routines and looking for some meals away from home. And we play a great opportunity, great role.”

Penegor said the $15 million is “like a big LTO.” Social messaging will supplement mainstream media. And then, Wendy’s will look to build off that 50 percent mark. “We’ve got a lot of great word-of-mouth out there. We’ve got a lot of consumers that are coming into the Wendy’s restaurants that are trying our food and we’re seeing it in our overall satisfaction metrics at breakfast,” he said. “They’re very pleased with the experience. And they’re talking about it on their social media channels. And I think all of those things really bode well. And others want to start talking about the breakfast daypart. Mobility is down so much. If we can get some more folks out and about a little bit to really drive some more breakfast business, I think we’ll participate quite nicely in all of that.”

As successful as breakfast has been for Wendy’s, the reality is it’s relative. The company never really got the chance to launch as planned, Penegor said. The 8 percent mix has come down a bit as other dayparts recover, yet absolute dollars, as noted earlier, have grown. “And that’s why we think it’s just an opportunity to continue to drive awareness, continue to have messaging around breakfast, and really ingrain breakfast is a habit in your morning routine and to get Wendy’s into that rotation,” Penegor said.

The $15 million investment in the back half of the year isn’t an end-all measure, either. It’s an investment into 2021 and beyond, he added. “… this is a long-term game,” Penegor said.

To date, Wendy’s hasn’t done a ton to promote breakfast beyond a buy one get one for $1 deal and mobile offers and coupons—standard trial vehicles for this stage. There hasn’t been much discounting.

Something that could play a role in the conversation is Wendy’s new rewards program, which launched in July. Penegor said the program is aimed at driving customer frequency by providing compelling offers, as well as marketing the option on packaging. It should lift mobile ordering’s share of Wendy’s digital mix in time.

The company will be able to drive more value through mobile offers and loyalty rather than elsewhere on its P&L. It could help drive-thru spend, too, as employees don’t get slowed down at the order station.

Wendy’s also announced on the call Chief Digital Experience Officer Laura Titas left the company. Penegor said the company made a call to evolve its structure and hire a chief information officer to its senior leadership team.

Fast Food, Finance, Story, Wendy's