The Wendy’s Co. is looking at ways to move customers away from discounting and also entice them to trade up to more add-ons and more premium products, executives said Wednesday.
The Dublin, Ohio-based burger brand reported same-store sales slipped 0.2 percent in the third quarter after 22 quarters of growth, and third-quarter traffic also was down slightly.
Todd Penegor, Wendy’s president and CEO, said the brand’s opportunity is in getting those customers to trade up.
“How do we continue to move focus from the ‘4 for $4’ offering into a higher price-pointed offering, like a $5-bundle meal?” Penegor asked in a post-earnings conference call with analysts. “How do we continue to have exciting offerings on our core and premium menus so once we get them to the restaurant with the appropriate up-selling and the appropriate messaging, trade them into those more premium offerings?”
In the fourth quarter currently underway, Wendy’s has offered more premium products like the Bacon S’Awesome Cheeseburger and value-oriented add-ons like the $1 Any Size Fries promotion and the 50-cent Frosty.
“We want to take a very reasonable approach to pricing,” Penegor said, “because we've got to be focused on that food-at-home versus food-away-from-home gap. And the grocery business continues to be competitive, and there's a lot of discounting there. So, we've got to be smart on the pricing front. But we also have to be realistic around what pricing needs to be passed on with the environment that we have.”
The company also is working on leverage technology, especially to increase speed of service, which will help bring back lapsed customers, Penegor said.
Income growth in the U.S. economy, as well as rising costs, are affecting the quick-service hamburger business, he added.
“We're seeing almost 10 years of economic recovery; we're seeing lowest unemployment levels in a long time, high consumer confidence and median households finally at record levels,” Penegor said. “But as you look at that income growth, it's skewed significantly to higher-income households.”
He noted that the quick-service restaurants get about 40 percent of their customers from those making $45,000 or less a year, and many face higher rent and healthcare costs.
“So that's why it is so important for all of us in the QSR space to have a really solid high-low calendar, to bring folks in and allow them to mix across the calendar, depending on the time of the month,” he said.
Wendy’s is also expanding its delivery footprint with third-party providers like DoorDash.
“We are now at approximately 50 percent coverage and targeting approximately 60 percent of the North America system by the end of 2018,” Penegor said.
“The consumer continues to have an appetite for convenience,” he said, “and we have seen this through our delivery economics. Average check sizes have been 1.5 to 2 times higher on delivery orders, and we continue to see solid customer repeat. In addition, our strongest customer satisfaction scores are coming from delivery, which is encouraging.”
For the third quarter ended Sept. 30, Wendy’s income increased primarily on the sale of its stake in Atlanta-based Inspire Brands for $450 million for a profit of about $355 million after taxes.
“We've been working through our strategy on how to best utilize this cash, considering our capital allocation policy,” Penegor said.
The company reported net income of $391.2 million, or $1.60 a share, up from $14.3 million, or 6 cents a share, in the same period last year. Revenues increase 30 percent to $400.6 million from $308 million in the same quarter a year ago.
Wendy’s, founded in 1969, has 6,600 restaurants worldwide.
Penegor said the company is looking at its international growth targets and building a new strategy for that expansion. “We really want to take another look at how we re-evaluate our approach to new-market entry,” he said.
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