The Wendy’s Co. and REEF Technology have agreed to a deal that calls for 700 delivery kitchens over the next five years in the United States, Canada and the United Kingdom, the companies said Wednesday.
Dublin, Ohio-based Wendy’s said it expects the agreement with Miami-based REEF to produce about 50 delivery kitchens this year and the remainder through 2025.
The commitment builds on the test of eight REEF delivery kitchens in Toronto late last year with Wendy’s Restaurants of Canada. The deal also will make REEF the first Wendy's franchisee in the United Kingdom.
The agreement led Todd Penegor, Wendy’s CEO and president, to say the company was increasing its 2025 global target to 8,500 to 9,000 restaurants, or a 500- to 1,000-unit increase from previous goals. The company currently has more than 6,800 restaurants worldwide.
“This commitment builds on the successful test that we completed in Canada and will allow us to further develop urban markets where we are currently underpenetrated,” Penegor said in a Wednesday second-quarter earnings call.
“We are still very early in our nontraditional development journey,” Penegor said, “but we are encouraged by the results that we've seen with REEF, and we'll continue learning alongside them throughout this partnership as we grow our brand.”
Abigail Pringle, Wendy's president for international and chief development officer, noted in a statement that “the demand for convenient delivery solutions means we must look for opportunities beyond our traditional restaurant formats, especially in dense urban areas.”
Penegor said Wendy’s expects the delivery kitchens to produce sales in the range of $500,000 to $1 million per unit. The royalty rate will be higher, he said, with about 6% in the United States and 5.5% in the United Kingdom.
For the second quarter ended July 4, Wendy’s net income rose to $65.7 million, or 29 cents a share, from $24.9 million, or 11 cents a share, in the same period last year. Revenues rose to $493.3 million from $402.3 million in last year’s quarter.
Same-store sales were up 16.1% in the United States, up 31.4% internationally and up 17.4% systemwide.
In the second quarter, Wendy’s breakfast, which was introduced in March 2020, continued to gain traction, Penegor said.
“Breakfast continued to be a profitable sales layer for us in the second quarter, and our average weekly sales dollars delivered vs. our breakfast plan,” he said. “We could not be more excited about the upside that is still in front of us.”
Breakfast sales accelerated in the quarter, the company said, growing 10% over the first quarter. “We continue to see very strong customer repeat and high customer satisfaction after people try our breakfast,” Penegor noted.
The company increased its breakfast advertising investment by $10 million, to $25 million, in 2021 to drive trail, he said.
“We remain confident in our plan to grow our breakfast sales by 30% in 2021 and reach our goal of 10% of sales coming from breakfast by the end of 2022,” Penegor said.
The additional $10 million in advertising, he said, is timed to be part of the consumers’ return to routines after the pandemic, such as schools reopening and offices calling workers back.
Breakfast and the company’s digital tools have also helped increase visits to Wendy’s units, he said.
“If you look back over the last 12 months, we're up about 20% from 5.5 visits to 6.5 visits,” he said. “We're very proud of that. Breakfast is driving some of that, digital is certainly helping that. If you look at all the QSR burger frequency over that same period, they saw declines of 5% to 10%.”
In the second quarter, Wendy’s did see a rebound in the lunch and late-night dayparts, which were impacted by COVID, Penegor noted.
In the period, Wendy’s relaunched its popular Summer Strawberry Salad and introduced its higher-end “Made to Crave” Bourbon Bacon Cheeseburger, which boosted average checks.
“We also executed against our high-low strategy by continuing the $5 Biggie Bag promotion, which drove traffic into our restaurants throughout the second quarter,” he said. “We will continue to strike a balance between our core menu items and new product offerings with exciting and ownable new products.”
Wendy’s will continue that approach to grow customer transactions, Penegor said.
“We need to have that balance on the high and the low to continue to bring those customers back, as mobility continues to increase more around a routine basis. Mobility has come back, but folks don't have that routine down yet, thinking about getting lunch at work or breakfast on the way to work, dinner on the way home from the office,” he said. “Those things are still all opportunities out in front of us to bring more customers into our restaurants.”
Wendy's, founded in 1969, has more than 6,800 restaurants worldwide.
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