Wendy’s wants customers to visit its app, and it isn’t afraid to pull some discounting levers to do so.
For instance, on National Cheeseburger Day, the brand offered one-cent Junior Bacon Cheeseburgers throughout an entire week. Also, earlier in the third quarter, Wendy’s celebrated National French Fry Day by offering free any size fry with any in-app purchase across four days. These types of deals “clearly drove folks in,” CEO Todd Penegor told investors on Thursday. U.S. loyalty membership surpassed 35 million in Q3, and monthly active users increased almost 40 percent quarter-over-quarter to more than 5 million as the chain exited the period. Penegor praised the value promotions, stating, “We will continue to lean into impactful offers to drive further loyalty program growth moving forward.”
“We want to get folks into the app because what we do see is more frequency and higher checks over time for those consumers,” Penegor said during the chain’s Q3 earnings call. “So we’re seeing all of that data happen. Early on, you’ve got maybe on par check, maybe slightly lower check with the offers that you see, but that’s more than made up by the lifetime value with the frequency that you get over time. And we can then really leverage all the data to really connect and have more personalized [messaging] rather than blanket offers out to the consumer environment.”
Penegor noted that Wendy’s is in the early innings of ramping up its one-to-one marketing ability. He added that the foundation is built; the chain just has to get the engine running effectively. Once it does, it will become a “nice generator to help our margins over time,” he said. In Q3, U.S. company-owned restaurant margin was 15.6 percent, an 80-basis-point lift year-over-year. CFO Gunther Plosch owed this to sales leverage and ease of inflation.
Widening margins were also due to profitable digital expansion.
Wendy’s global digital mix reached 13 percent in Q3, up 30 percent year-over-year. This expansion can be attributed to strength in all digital channels, including delivery. Penegor noted that “strong partnerships with third-party delivery providers” benefited the brand as it activated ads and exclusive offers tied to college football and new product launches. Wendy’s is on pace for $1.8 billion in digital sales this year, which would be up more than 20 percent versus 2022.
The U.S.’ mix increased to more than 12 percent, with quarter-over-quarter growth fueled by a “meaningful uptick in our loyalty program,” Penegor said. Internationally, the channel accounted for more than 18 percent of sales. In Canada specifically, the chain holds the No. 2 position in digital traffic share among the quick-service burger segment. Across the pond, the U.K.’s digital mix is now over 90 percent (12 corporate restaurants).
“Looking ahead, there is still significant digital growth to be captured,” Penegor said. “The large uptick in monthly active users last quarter and the increase in our digital sales expectation is just the taste of what’s in front of us. I am confident that continued execution of our plans alongside our key partners will drive our digital business in the years to come.”
Digital and off-premises are a major part of Wendy’s future restaurant prototypes. The company said in August that the first two Global Next Gen builds are open in Kansas and Oklahoma and that it has goals to debut more than 200 of them through 2024. Abigail Pringle, Wendy’s president of international and chief development officer, said Global Next Gen unlocks 400 times the digital order capacity. The upgraded design features self-order kiosks, conveniently located passthrough order pickup shelving, and dedicated parking for mobile order pickup to help create a more streamlined experience for digital-first customers. Moreover, the prototype has a specially designated delivery pickup window and parking spots designed to enhance the flow of restaurant traffic and offer added convenience for delivery partners.
Wendy’s cut development costs 10 percent with the Next Gen design. With no incentives, a levered payback for franchisees is about six years. If operators sign up for the chain’s Build-to-Suit program—which Penegor called the most attractive option for franchisees—there’s a levered return of three-and-a-half years. For the Pacesetter program, it’s four years. The Groundbreaker incentive offers a payback of five-and-a-half years.
The fast-food giant opened 72 stores globally in Q3 (27 in the U.S. and 45 internationally) and 152 restaurants dating back to the start of 2023 (66 in the U.S. and 86 internationally). The brand expects to reach its annual development target as it now has 100 percent of its current-year pipeline open or under construction.
As of October 1, Wendy’s was comprised of 7,166 restaurants. There were 6,010 U.S. locations, of which 403 were company-owned and 5,607 were operated by 215 franchisees. In addition, there were 1,156 international units, of which 1,144 were operated by 106 franchisees
and 12 were corporately owned in the U.K.
“We are building confidence, and we know we need to continue to work to take a little bit of cost out of the building and continue to drive our margins up,” Plosch said. “And we’ve been seeing nice healthy margins on company new restaurant openings, which have been opening north of $2 million with margins above the average margins that you see for the company. So those are encouraging signs too.”
U.S. same-store sales increased 2.2 percent in Q3, lapping 6.4 percent growth in the year-ago period. Year-to-date, comps rose 4.7 percent, compared to 3.3 percent in 2022 during the same stretch. Internationally, same-store sales lifted 7.8 percent in Q3 on top of 10.8 percent growth in 2022. Year-to-date, comps rose 9.4 percent, rolling over 13.3 percent during the same period last year.
Penegor said traffic was challenged throughout the third quarter, which impacted Wendy’s early results. However, the brand responded with a series of innovations and promotions—Frosty Cream Cold Brew, English Muffin Sandwiches, and Loaded Nacho Cheeseburger and Fries—that eventually led to positive customer counts in the latter half of the quarter. This drove an acceleration in one and two-year same-store sales growth each month of Q3.
Wendy’s expects mid-single-digit global same-restaurant sales growth for full-year 2023 and fourth quarter comps in the low single-digit range. The brand is losing traffic from household incomes $75,000 and under, but seeing trade down from mid-scale casual chains.
“We do feel like we’ve got a calendar that’s very balanced with high and low to support both income cohorts,” Penegor said. “And our job is to continue to make sure that we create great experiences as we have those folks trade into our brand and have compelling offers to make sure as folks get a little healthier from an economic standpoint, they continue to come back into the Wendy’s brand with our great promotions moving forward.”