While Wendy's emphasis on value deals like its popular 4 for $4 menu option got customers into the restaurants, the company failed to convert those diners into higher-paying customers.
— Erika Adams
Wendy’s had a lot to answer for on its third quarter earnings report, where the company revealed that same-store restaurant sales had declined for the first time in years. Analysts had estimated that same-store sales were going to be up by 1.7 percent in the quarter; actual sales declined by 0.2 percent.
The decline was widely pegged to Wendy’s heavy promotional strategy (including the 4 for $4 menu deals and the dollar burgers). While customers were coming into the restaurants to take advantage of those deals, the company wasn’t able to convert them into higher paying diners.
Given the sales volatility, Wendy’s leadership did not reaffirm previous 2020 goals around sales growth and new restaurant development. “To be clear, this doesn’t mean that we have given up on [the goals],” CEO Todd Penegor reiterated on the company’s third quarter earnings call. “We just need to have a little bit of time to actually look through this.”
More App Downloads
Penegor was adamant that a key factor in driving higher sales will come from Wendy’s tech developments. The company invested in promotions to drive customer acquisition on Wendy’s mobile app in the third quarter, and that effort resulted in Wendy’s doubling the number of active users on the app compared to the previous quarter.
“Our mobile offers, which are available for use in all of our U.S. restaurants, will continue to drive mobile app usage and will set us up for a successful rollout of mobile ordering, which has now begun across North America,” Penegor said.
Expansion of Delivery Coverage
Delivery was another bright spot in Wendy’s earnings. The company officially partners with DoorDash and Skip the Dishes (a Canadian delivery service), and Penegor pointed out that expansion on the delivery front “is pacing ahead of our expectations.” 50 percent of the company’s North American restaurants are currently offering delivery, and Wendy’s plans to up coverage to 60 percent of restaurants in North America by the end of the year.
Penegor noted that average delivery check sizes are up to two times higher than the average in-store check, and delivery customers are increasingly becoming repeat diners.
“We feel really good about our delivery business,” Wendy’s chief financial officer Gunther Plosch told analysts. “It’s driven jointly between us and DoorDash. DoorDash is making investments on the outside as they offer free deliveries and the likes. We are making investments on our side as we are offering our airtime to talk about delivery through DoorDash.”
Looking to Tech for Future Growth
The bar for improvement has been set, and Penegor was clear that the drivers for growth are going to come from tech-fueled new initiatives, from expanded, integrated delivery options to mobile app ordering to updated restaurant designs.
“Ultimately, what we need to do is continue to bring more people into our doors more often,” Penegor said. “It really comes down to: how do we create a more consistent experience across all of the system? How do we continue to invest in technology to connect to the consumer a little bit more often? How do we continue to re-image our restaurants at a nice pace to create an experience to bring in customers? All of those things will play into those growth prospects in the future. And there are still big opportunities in front of us.”
Immediately after the call, Wendy’s share price was trading down 3.75 percent.