Wendy’s new restaurants boast upgraded tech, drive-thru, delivery experiences, and higher employee satisfaction levels thanks to a more efficient labor approach. Not surprisingly, they’re also producing U.S. average-unit volumes north of $2 million and operating margins better than the system average.
It’s providing a contrast, however, to the other side of data from a recent review of restaurants management conducted across America. CEO Kirk Tanner, who’s been at the helm for nine months now (he was CEO of Pepsi’s North American beverages prior), told investors Thursday the brand made the call to close more units this year that are outdated and located in underperforming trade areas. It will amount to 140 going dark, primarily in the U.S., inclusive of eight to 12 company locations, to finish the calendar at roughly flat development. Tanner said the stores are averaging $1.1 million (compared to the stateside system’s $2.1 million), are aging, and generating operating margins well below the mean.
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Tanner said Wendy’s designed the initiative so, over time, many will be replaced by new restaurants at better locations with “significantly improved” sales and profitability.
By the end of 2024, Wendy’s will have opened more than 500 new restaurants over the last two years. Tanner said he expects elevated growth in 2025 (3–4 percent net unit expansion) and in “the years to come.” About 70 percent will be international.
In recent years, Wendy’s held closer to 2 percent growth. It was tracking toward 2.1 percent in 2024 before the closures.
Tanner said Thursday’s decision is intended to build on a strong fleet. Eighty-nine percent of stores systemwide have undergone an image activation. Of those 500 openings mentioned, nearly 250–300 will come this year. The point being, Tanner said, Wendy’s is adding a crop of successful locations on top of others at the expense of under-performers.
The closures will be spread out, he added. “When you think about strengthening our system, you look at a brand that’s 55 years old and some of those restaurants are … just out of date and that’s really kind of the punch line on that one,” Tanner said. “It’s not one particular area. It’s across the board.”
Tanner sees potential for “another additional couple thousand” U.S. restaurants to reach the brand’s potential. It closed Q3 with 6,011 domestic restaurants, up one from the year-ago period. Internationally, there were 1,281 Wendy’s, growth of 125, year-over-year.
“If you think about the strategy, [it] was to strengthen our system to get high-performing restaurants moving,” he said. “Our focus is on building new restaurants because we know they deliver well over the average of these poor-performing restaurants. … that’s kind of the mentality that we’ve taken in this approach, and then we overall want the best restaurant for the customers and that customer experience we want to deliver.”
Outside of closures, Wendy’s presented some promising developments. Global and U.S. same-store sales each grew 0.2 percent over laps of 2.8 and 2.2 percent, respectively. The brand also guided full-year results of 1–2 percent, which would suggest a range of 2–6 percent acceleration in Q4. Management hinted a material bump arrived in October thanks to Wendy’s SpongeBob collaboration. In all, Wendy’s could close 2024 with its strongest comps of the year thanks to promotions.
U.S. company restaurant margin was 15.6 percent in Q3, flat to prior year. Adjusted EBITDA decreased 2.9 percent to about $135 million.
For perspective on the overall landscape, Tanner said Wendy’s held traffic share within the quick-service burger category despite running flat sales—a sign of how transactions category-wide continue to drag due to higher prices and cautious spending.
But looking at Wendy’s from a loftier view, Tanner said he’s approaching the double-digit month mark on the job with a few levers at the ready. One, fittingly, aligns with his beverage roots.
Wendy’s recently expanded its partnership with Coca-Cola in a way, Tanner said, capable of enabling it to grow the category exponentially. He spotlighted the Freestyle platform and its 100-plus drink choices, and how it delivers Coke’s portfolio in full and zero sugar to give customers “real choice.”
“That’s an advantage at Wendy’s,” he said. “And we wanted to celebrate that and remind people of that. That’s when the $1 promotion definitely [a $1 any size deal that kicked off in Q4] is effective.”
Wendy’s has plans to add beverage options to meet modern preferences, Tanner said, although he wouldn’t divulge details just yet. “Beverage is a real profit opportunity for us in the future,” he explained. “We have a platform and Freestyle that allows us to deliver choice for customers. And you’ll see us settle down on that. So we’ve got some momentum on beverages right now.”
“My heart is still with beverages a lot,” Tanner mentioned earlier. “… it drives profitability. Yes, look for us to innovate across our beverage portfolio for breakfast and the rest of the dayparts. You’ll see a lot from us in the beverage category.”
Tanner said breakfast delivered a mid-single-digit sales increase in Q3 compared to the prior year. Late night also expanded at a high-single-digit percentage over Q3 2023, driven by delivery and digital momentum.
Like beverages, Tanner said Wendy’s will aim to drive margin improvement through breakfast growth, which it anticipates outpacing the rest of the day, as it has for a while. Through a company investment in advertising, Wendy’s recently launched national media for burritos.
In Q2, Wendy’s said breakfast was earning about $3,000 per week per store or roughly $156,000 per year. So given the AUV, breakfast mixed about 7.5 percent. The chain’s larger goal has been to grow breakfast to $6,000 per week, per store.
Wendy’s in February said it would spend $55 million worth of incremental advertising on the category in the U.S. and Canada, split evenly across 2024 and 2025. Tanner last quarter noted Wendy’s optimized its level of investment to allow for extended spend beyond 2025. Originally, the plan was $27.5 million in 2024 and 2025. Now, Wendy’s will roll out $22 million in 2024.
“We like the tailwind that it’s giving us right now,” Tanner said. “It is growing faster than the category and it’s growing faster than our business. So it’s a nice tailwind to us. We look at this opportunity as profit accretive, leveraging the restaurant. It’s also an incremental daypart as we build that. So it gives us the traction that we need for the long haul.”
Wendy’s global digital sales lifted nearly 40 percent in the period, year-over-year. U.S. closed the quarter at 17 percent digital sales mix. Tanner credited enhancements to Wendy’s app that allowed it to deliver an improved user experience.
There are now roughly 45 million rewards members enrolled in the platform, up from $43 million at the end of Q2.
Wendy’s also provided a brief update on its FreshAI voice-enabled order taking tech. Launched last year through an expanded partnership with Google Cloud, Wendy’s uses generative AI to formulate dynamic responses and adapt in real time. Since December 2023, the chain rolled the platform from four corporate units in the chain’s home base of Ohio to roughly 30 across two states. An early Columbus, Ohio, pilot showed a 22-second improvement in service times compared to the market average. Spanish language capabilities arrived in August.
Tanner said FreshAI could further enhance margins as it boosts labor efficiency and enables crew members to spend more time on customer-facing service. The goal will be to broaden implementation in 2025 across more company and franchise stores, he said.
Seventy percent of Wendy’s transactions flow through the drive-thru. “I tell you, we’re delighted with how this continuously gets better,” Tanner added. “We’re seeing improvements in accuracy, efficiency, and it gives us the confidence that we’re going to see some efficiencies in the overall labor model in the restaurant. So we’ll leverage the restaurant, the employees in the restaurant to deliver against a more efficient execution, and that is enabled by AI. Look, this is one of those things you go slow to go fast. Right now, we’re in this continuous improvement, learning, getting our accuracy to a place where we like, and then you’ll see us deployed across the system.”
Going back to SpongeBob and some other activations—Wendy’s earlier in October launched the Krabby Patty Burger and Pineapple Under the Sea Frosty in honor of the show’s 25th anniversary—Tanner said the promotion built off core menu items, which is a vital point to note going forward. It’s driven significant sales growth and earned media, he said. (Here’s a look at what it did to traffic).
“What I really attribute some of the success is it’s really built off our core menu,” Tanner said. “The Krabby Patty Burger is built off that square, fresh, never frozen burger. And of course, leveraging our Frosty is always a game changer. And the combination of those two things really hit the mark.”
Tanner noted Wendy’s will soon feature a Salted Caramel Frosty flavor and bring back the Mushroom Bacon Cheeseburger. Nationally, it’s going to showcase the chain’s classic Spicy Chicken Sandwich through national media.
Campaigns are going to incorporate Wendy’s tagline and highlight its food, he continued. The focus unravels threefold: One, Wendy’s will build its core and look at how to energize those central offerings; it will continuously talk about the fresh, never frozen positioning, Tanner said, as a category separator and see how it can build up.
There will always be innovation as well (Saucy Nuggs and new Frosty flavors being recent examples).
The last part will be through a value offering, which today owes to the Biggie Bag platform. It’s given Wendy’s an architecture to promote a $5 price point around versus some of the new entries to the space from competitors like McDonald’s and Burger King. The Biggie Bag has been in play since 2019 and hasn’t needed an introduction.
CFO Gunther Plosch said the Biggie Bag’s mix was up a percent or so, year-over-year. It’s helped Wendy’s maintain share on a dollar and traffic basis as value activity heats up. Plosch explained Wendy’s views the wider challenge, though, beyond executing price-pointed promotions and value deals and bundles. “There’s more to that,” he said. “For us, we believe, to be competitive, we need to continue to innovate. We have demonstrated this in the third quarter. You see the innovation lineup in the fourth quarter. We’re going to continue to do this to delight the value-seeking consumer.”
On top, as Tanner suggested, Wendy’s will ensure its core menu stands out in the value marketplace, too.
“And let’s don’t forget operations, right? We are laser-focused for the restaurant to be the star and really have a customer-centric mindset,” Plosch added. “We are working really hard on having that value-seeking consumer have an outstanding experience at the restaurant. So this whole package of great value, great core menu, we are innovating, and then we are really executing well when it matters. When we’re meeting the consumer, this is how we think we can be very successful in the value environment.”
