Listen to the article
4 minutes

This audio is generated automatically. Please let us know if you have any feedback.

Dive short:

• Wendy’s will close several legacy restaurants in underperforming areas where average unit volumes are approximately $1.1 million and operating margins are well below system average, Kirk Tanner, Wendy’s president and CEO, said Thursday during an earnings call. These closures will strengthen the overall health of Wendy’s system, Tanner said.
• Total closures through 2024, including 140 more in the fourth quarter, will offset new restaurant openings, leaving net unit growth essentially flat, CFO Gunther Plostch said.
• The chain, which posted US same-store sales growth of 0.2% expects to open 250 to 300 new restaurants worldwide by the third quarter this year, according to an earnings presentation.

Diving insight:

Other chains have closed underperforming locations to strengthen their overall operations while maintaining new unit development plans. Denny’s, for example, plans to close 150 restaurants with low unit counts by 2025 while continuing to rely on new construction and renovation. Shake Shack closed nine underperforming restaurants earlier this year, but expects to open 75 restaurants this year.

During the first nine months of the year, Wendy’s closed 111 units systemwide, including 78 franchise units and six company-owned units in the U.S., according to a U.S. Securities and Exchange Commission filing. The chain ended the third quarter with 7,292 units worldwide, compared to 7,166 a year ago.

Wendy’s has used data-driven insights to target high-growth trade areas that have led to unit volumes exceeding $2 million and above-average operating margins, Tanner said. These restaurants typically have a better customer experience thanks to new technology and improved drive-thru and delivery operations. They also have higher employee satisfaction with more efficient employment models.

In 2022, Wendy’s Next Gen prototype became the standard version for new restaurants. This design includes a pick-up window for delivery, a mobile order parking lot and in-store shelving for digital orders, and a redesigned kitchen layout.

“Overall, Wendy’s system is incredibly healthy,” Tanner said.

To keep the system healthy, management has conducted a “robust review” of individual restaurants to ensure they meet sales expectations, have the profitability to sustain growth and can provide a great customer experience, Tanner said .

“I have made the strategic decision to close additional restaurants this year that are outdated and located in underperforming trade areas,” Tanner said. Over time, new construction will replace many of these restaurants in areas with better sales, profitability and a projected AUV of more than $2 million.

The restaurants slated to close are spread across the U.S. and are not tied to a specific region or market, Tanner said. Looking at the broader picture, these do not represent a significant number of closures, he added. The chain still has the white space to add roughly 1,000 units in the U.S. and plenty of potential internationally to achieve its market penetration goals.

Wendy’s expects that new units will be distributed 70% internationally and 30% domestically in the future. After adding franchise incentives in the U.S. in 2023, the chain is also offering incentives in Latin America and Canada to accelerate growth in those regions, which has already sparked many development conversations, Tanner said.

The chain also has development commitments in place that will allow Wendy’s to meet its new construction goals and support its outlook for net unit growth of 3% to 4% by 2025, he said.

“By the end of 2024, we will have opened more than 500 new restaurants over the past two years and are confident to deliver increased growth in 2025 and beyond,” Tanner said.