Wendy’s closures and traffic challenges now have the brand as the third-largest fast-food burger chain again. | Photo: Shutterstock.
Wendy’s did not have a great second quarter. Same-store sales fell 7%. Traffic plunged 12.5%. That, plus the chain’s 245 closures so far this year, have set its domestic system sales back 8.2%.
It was the sixth straight quarterly decline, and the second straight period in which the two-year same-store sales fell by 10% or more. And executives warned that traffic will remain weak for the balance of the year, enough that it pulled its earnings projections for the year and reduced its quarterly dividend to help fund “targeted investments” to lift the brand out of its slump.
But the challenges all seemed to happen so suddenly. Wendy’s in early 2024 opted to hire a new CEO, who left 18 months later to take a job with Hershey’s. The brand went several months before naming his replacement, in longtime Wendy’s executive and former Potbelly CEO Bob Wright.
In the meantime, its longtime rival Burger King overhauled operations, spruced up more restaurants and started hitting on marketing. Its same-store sales increased 8.5% last quarter, enough that the chain leapfrogged Wendy’s, returning to the No. 2 spot in the fast-food burger business behind McDonald’s.
Wendy’s has turned to Wright, who first started working with Wendy’s 28 years ago, and who initially worked with the chain’s legendary founder, Dave Thomas. “Wendy’s is a brand rooted in quality in everything we do,” Wright said. “We have exceptional assets, a differentiated brand, a strong franchise system with an international footprint, talented teams, and passionate employees.”
But, he said, the company lost its way on quality. Specifically, Wright suggested the brand has struggled with execution, which led to “quality degradation.”
“Our quality differentiation has eroded, our value proposition has weakened, and we have not consistently delivered the experience customers expect from Wendy’s,” Wright said. “These issues have weighed on traffic and created pressure on the restaurant economic model, which is the heartbeat of this business.”
The traffic challenges came from a variety of places. Wendy’s cut back on its discounting, which hurt customer counts. A “Minions and Monsters” movie collaboration did not result in traffic growth the way the brand expected.
Breakfast in particular has been a challenging one for Wendy’s of late. The company introduced the daypart in 2020 and it generated sales for the brand. But it also made compromises to make it work for franchisees from a profit standpoint.
And as sales declines eroded franchisee profits, Wendy’s gave operators the option to cut it out. That hurt same-store sales by 70 basis points, and the daypart’s overall weakness by 120 basis points.
Wright believes breakfast is still part of the company’s plan. “Breakfast is important to us, and it’s a complex topic that frankly we’re still analyzing very deeply,” he said. “We need to get our footing on the remainder of the strategy before we start deciding exactly where breakfast fits into that.”
Wright provided several, general strategies to lift sales. He said that the company needs to improve its menu with quality items at a “compelling value.”
He also suggested that value isn’t simply about having a value menu, which he called “compartmentalized.”
Rather, consumers want “intrinsic value,” meaning that consumers must believe whatever they get from Wendy’s was worth the money. “When you take that last bite of that double with cheese and feel like it’s a good deal, something that I got what I paid for, maybe a little more,” Wright said. That, he said, goes along with everyday value from the chain’s “Biggie” platform.
There’s also promotional value to get customers in the door through digital or national offers. “All three of those things have to work,” Wright said.
Wright also took issue with the company’s marketing, suggesting that the brand relied too heavily on “one-off promotions and collaborations” rather than building a connection with consumers. “I’m not satisfied with how effective our marketing has been,” he said.
And Wright, an operations specialist, said that the company’s execution at its restaurants were “inconsistent.” He said the chain’s drive-thrus need to improve the way they manage traffic during peak hours and that restaurants must be staffed appropriately with demand.
The store base, he said, was strong and not quite in need of the remodel program other brands are trying. But Wright said that “some of them are not being maintained and supported and cleaned and given our best face.”
“It’s going to take time,” Wright said. “But these issues are within our control and my conversations with franchisees, restaurant employees, and customers give me strong conviction that attacking these issues head-on will yield results.”
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Restaurant Business Editor-in-Chief Jonathan Maze is a longtime industry journalist who writes about restaurant finance, mergers and acquisitions and the economy, with a particular focus on quick-service restaurants.
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