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?
