Wendys is sick of losing the fast food wars to McDonald's and Burger King
to fix that. It's turning to breakfast and customers outside the U.S.
in early 2020, it's going to add a breakfast menu in the U.S.
by 2021.
It's going to open stores in Europe, starting with the United Kingdom.
There's just one problem.
Wendy's has tried to do both of these things before and it's failed.
But Wendy's thinks this time will be different.
Investors aren't so sure.
The day after Wendy's announced its breakfast plans in September 2019, its
stock plummeted 10 percent and its $20 million investment in breakfast
means its 2019 earnings are expected to decline.
After years of fading into the background, Wendy's is looking to stand
out. I think that Wendy's looks a lot like their peers in terms of a
competitor in the Fast-Food space.
The biggest shift that we've seen is a change in ownership and they put
that in the hands of their local partners that can, should and hopefully
will operate them better.
It's the number three burger chain by revenue behind McDonald's and neck
and neck with Burger King.
At the same time, Wendy's is grappling with an industry wide problem for
fast food, a declining customer base.
The big question now, has Wendy's learned from its past failures?
And will its plans for breakfast and global expansion be enough to break
out of third place?
50 years ago, Wendys was just a single restaurant in Columbus, Ohio.
Founder Dave Thomas opened the store in 1969 after struggling to find a
good burger in the Midwestern city.
Rival burger chains McDonald's, Burger King and White Castle had already
been around for years.
But Wendy's had an edge over the competition.
It always served fresh, never frozen beef, which wasn't the case for its
chief burger rivals.
In 1970, Wendy's added a pickup window to its second location.
The drive through was nothing new at that point, but it was the first
restaurant to make it really work for its business.
The pickup window helped jumpstart Wendy's from a small burger chain to a
fast food powerhouse.
Two years later, in 1973, Wendy's began to franchise its restaurants.
Franchising back then usually meant giving permission to operators to open
a single store to.
Thomas changed that.
He sold franchises for entire cities and regions in the company's first
100 months. It opened to more than 1000 restaurants in 1976.
Wendy's went public on the Nasdaq, issuing 1 million shares at $28 a pop.
Five years later, it moved to the New York Stock Exchange as Wendy's grew.
Thomas continued to play a key role in the business while he was CEO.
The burger chain introduced salad bars and baked potatoes.
Those options, along with its fresh beef, made consumers think it served a
higher quality food than rival McDonald's.
In 1980, Thomas took on more of a figurehead role as senior chairman in
1985. Wendy's tried breakfast for the first time.
Thomas had always opposed breakfast, but his departure in the day to day
operations cleared the way on the menu, made to order omelets.
French toast and coffee.
But breakfast slowed down service too much and customers wanted to eat
their food quickly. And on the go.
So Wendy's pulled the plug on breakfast just nine months later.
It left the decision up to individual franchisees.
Most took it off the menu.
At the same time, Wendys was trying out a breakfast menu in the 1980s.
It was also pushing too quickly into expanding overseas to countries like
Germany, New Zealand, Guatemala and Greece.
But its international ambitions largely flopped, just like its breakfast
plans. By 1994, system wide sales hit four point two billion dollars.
Starting in the 1990s, Wendys strategy pivoted to acquisitions and
partnerships. In 1992, Wendys started operating combo stores with Tim
Hortons in Canada.
The iconic coffee chain was its ticket to sales growth.
As the burger chain's sales matured in 1995, Wendy's formally merged with
Tymms for $450 million.
Besides coffee, Timbs was also famous for its doughnuts in buying the
chain. Wendy's once again had breakfast.
In 2002, Wendy's bought another chain bar, Fresh Mexican Grill.
This time it was following the lead of McDonald's in 2002.
Its rival was the majority investor in support.
Mexican Grill Chipotle had more than 200 restaurants.
Its smaller competitor, bahat Fresh, had 170 locations and bahaha Fresh
wasn't Wendy's only deal in 2002.
The deals were meant to diversify the company and help it spur growth.
But that growth would soon hit the skids.
In 2004, Wendy's announced a goal for its long term store development
eight thousand five hundred to nine thousand five hundred total
restaurants by 2013.
But as of 2019, the burger chain has yet to hit that goal.
In March of 2005, a customer made a shocking claim.
A California woman said that she had found a severed human finger in a
serving of Wendy's chili.
She later admitted to planting a fake finger herself, but Quarterly's same
store sales still dropped by 4 percent in 2005.
The company reported negative annual same store sales at Wendy's for the
first time in 19 years, even though the burger chain's annual revenue was
flat thanks to its other chains, particularly Timbs.
The company's overall revenue continued to grow and despite the bad press,
investors stood by the chain and pushed the stock up to all time highs.
But Wendy's same store sales continued to flounder over the next few
months, and the company found itself under pressure.
Activist investors thought it would make more sense to spin off its other
brands and concentrate on Wendy's.
McDonald's had tried a similar strategy around the same time, but
ultimately sold off its stakes in triple-A Boston Market and others to
focus on a turnaround.
But even as Wendy's renewed its focus on the core brand, sales continued
to slow down as McDonald's staged a comeback in 2006.
In July 2007, Wendy's said it was going to try consider selling itself.
But the next month, credit markets dried up and it looked like Wendy's
chances of a buyer did, too.
But in Swooped, one of its activist investors, Treyarch companies, which
also owned Arby's, bought Wendy's try ark.
changed its name to Wendy's Arby's Group as part of the Wendy's Arby's
Group. Wendy's got a makeover.
It was going to offer breakfast again.
The second time around, Wendys had a new approach to its morning lineup.
It was only going to test out breakfast in certain regional markets before
going for a big national launch and it was going to diversify its menu
instead of made to order omelets and French toast.
It offered simpler items, but the breakfast relaunch came at the height of
the financial crisis and consumers didn't have the extra cash to spend.
So Wendy's breakfast wasn't taking off.
Wendy's decided to delay its nationwide breakfast plans until 2011 to buy
the company time to revamp its strategy and the product itself.
Even with all the drama over its failed attempts at a breakfast menu,
Wendy's was thriving as part of the Wendy's Arby's group in 2011 for the
first time since its founding.
It became the number two burger chain in the country based on system wide
sales beating out Burger King.
But its sister chain, Arby's, was struggling.
So in 2011, the Wendy's Arby's Group sold most of its stake in Arby's to
Rorke Capital Group, a private equity firm.
The Wendy's Arby's group was no more.
It was now the Wendy's company.
The sale meant all attention was back on Wendy's to go toe to toe with
rivals. It was going to step back into breakfast.
Wendy's blew past its 2011 deadline for nationwide breakfast, but kept
testing regionally.
But by 2013, it had again abandoned a nationwide rollout.
This time, the menu was too varied.
Both healthy and indulgent, the competition was too fierce.
McDonald's dominated the landscape even as other fast food chains like
Burger King and Taco Bell entered the breakfast category.
Wendy's stayed on the sidelines.
Instead, it focused on building brand recognition on social media.
Its Twitter account became known for its snarkiness hitting back at other
fast food chains.
For example, in 2016, after Burger King started promoting a 5 4 $4 deal to
compete with Wendy's for four $4 deal, Wendy's fired back on social media
that the difference was its food was edible.
Wendy's response got 23000 retweets from fans and attention from the media
in 2018.
Wendy's went even further, it dropped a mixtape aimed at McDonald's and
Burger King. And apparently there's music that apparently is doing quite
well. On Friday we dropped a little on mixtape, but was all about fresh
peect on a weekend on on i-Tunes at number three on the Hip-Hop charts, if
you can believe it. But it's really about telling our food story that
we're fresh, never frozen.
And and we called out a few of the competitors along the way.
But we want to really make sure that people understand that that we are
fresh and we're a little bit different.
But funny tweets and novelty songs don't necessarily translate into sales
from 2013 through 2015.
Wendy's closed more stores than it opened, and from 2013 to 2018, annual
revenue kept falling, in part because Wendy's was selling off some of its
company operated stores to franchisees in 2015.
Burger King overtook Wendy's as the second biggest burger chain in the US
in twenty seventeen. As McDonald's and Burger King added more deals to
their menus, Wendy's was again neck and neck with Burger King for second
place in the fast food burger market.
Wendy's same store sales turned positive again in the fourth quarter of
2018, but its third quarter results served as a warning.
Its business needed a boost.
Overshadowed by McDonald's and Burger King, Wendy's is looking for a way
back into the spotlight.
In September 2019, it announced plans to re-enter breakfast with a
nationwide launch in 2020.
We're in a much different position as a brand.
We've done a lot of work over the last five or six years to reimage our
restaurants. We've done a lot of work on the digital front and we did a
lot of work to really strengthen the franchise community.
So we have a really strong foundation to build upon to drive accelerated
growth. And why is it going to be different this time while we spent a lot
of time learning from our past mistakes?
Wendy's is planning on hiring 20000 new employees to make breakfast work.
Wendy's anticipates that breakfast sales will grow to at least 10 percent
of its total daily sales helped by a national advertising push.
But Wall Street analysts are skeptical.
So I don't think they'll take any one big chunk from anyone, certainly not
a big chunk out of McDonald's, for example.
But hopefully they can pull a little bit from all of their competitors
that are doing breakfast since its last breakfast attempt.
The breakfast wars have gotten even more crowded.
Chick-Fil-A, Subway, Burger King, Jack in the box, Taco Bell, they all
offer breakfast, too.
And we know a lot of consumers are out there that are really looking for
the high quality food from Wendy's during breakfast.
And we're going to bring some great offerings.
The breakfast bacon eater, you know, the Frosted Chino, the honey butter
biscuit chicken sandwich, our signature breakfast potatoes.
We will be able to stand out from the competition on the quality of our
food by 2021.
Wendys expects that breakfast will be profitable for its business.
But the day after Wendy's announced its breakfast plans, shares plunged 10
percent, its market value dropped by $516 million.
Before then, the stock was up 40 percent in 2019.
But as the chain has shared more about its plans and reported strong
quarterly same store sales growth.
Shares have come back since announcing its nationwide breakfast launch.
Wendy, shares have jumped 16 percent as Wendy's focuses on breakfast in
the U.S. It's also going to grow its presence abroad, unlike McDonald's
and Burger King. The vast majority of Wendy's restaurants are in the U.S.,
not outside of it. And Wendy's last had a major European presence in the
1980s to re-enter the continent.
Wendy's picked the United Kingdom.
Once we made that announcement that we were going in as a company, we had
a lot of interest of potential franchisees not only to help us build out
the UK, but to eventually allow us to get into broader Europe.
The country happens to be one of McDonald's largest markets.
It also happens to be trying to leave the European Union.
That means uncertainty about supply chains, tourism and the value of the
pound. Not to mention Britain's overall economy.
Between breakfast and European expansion, Wendy's isn't currently looking
to buy more companies.
In October 2019, nineteen at Wendy's Investor Day, executives said that
its era of mergers and acquisitions is over.
Instead, Wendy's is putting its cash into breakfast an international
expansion. If either of those initiatives fail, then the burger chain will
have to go back to the drawing board.
So now the only question is can Wendy's pull it off?