Wendy’s to close 140 underperforming restaurants in Q4

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Diving card:

• Wendy’s will close a number of aging restaurants in underperforming areas where average unit volume is about $1.1 million and operating margins are well below the system average, Kirk Tanner, Wendy’s president and CEO, said Thursday during an earnings call. These closings will strengthen the overall health of Wendy’s system, Tanner said.
• Overall closings in 2024, including 140 more in the fourth quarter, will offset new restaurant openings, making net unit growth about flat, Chief Financial Officer Gunther Plostch said.
• The chain that posted US same-store sales growth of 0.2% expects in the third quarter to open 250 to 300 new restaurants globally this year, according to an income statement.

Diving Insights:

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 by 2025 that have low unit volumes while still leaning on new construction and remodeling. 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 system-wideincluding 78 franchise units and six company-owned units in the United States, according to a US Securities and Exchange Commission filing. The chain ended the third quarter with 7,292 units globally 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 above $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 levels with more efficient work models.

In 2022, Wendy’s Next Gen prototype became its standard building for new restaurants. This design includes a pick-up window for delivery, mobile parking ordering and store shelves for digital orders and redesigned kitchen layouts.

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

To keep its system healthy, management conducted a “robust review” of individual restaurants to ensure they are meeting sales expectations and 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 commercial areas,” Tanner said. Over time, new buildings will replace many of these restaurants in areas with better sales, profitability and an expected AUV of over $2 million.

The restaurants set for closings are sprinkled across the United States and not tied to a particular region or market, Tanner said. Taking the broader picture, these do not represent a significant amount of closures, he added. The chain still has the white space to add approx. 1,000 units for the US and a large potential internationally to achieve its market penetration goals.

Wendy’s expects new units to be split 70% international and 30% domestic in the future. After adding franchise incentives in the United States in 2023, the chain is also offering incentives in Latin America and Canada to accelerate growth in those regions, which has already led to many development conversations, Tanner said.

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

“By the end of 2024, we will have opened more than 500 new restaurants over the last two years and are confident of delivering high growth in 2025 and the years ahead,” Tanner said.