Wendy's, the fast-food giant known for its fresh hamburgers and Frosty treats, has made headlines this week with its announcement to close 140 of its restaurants by the end of 2024. This decision marks another chapter for the Dublin, Ohio-based chain as it navigates the challenging waters of the restaurant industry.
During their third-quarter earnings call on October 31, Wendy’s President and CEO Kirk Tanner elaborated on the closures, stating, "We want to take proactive steps to improve our restaurant footprint and overall system health." The discussion centered on the fate of underperforming establishments deemed outdated and inefficient, as Tanner noted the restaurants set for closure have average unit volumes (AUVs) significantly below the system average, with many struggling to reach around $1.1 million.
Tanner assured investors and customers of the company's commitment to growth, anticipating the closures would be balanced by new openings. "We're focused on transforming our restaurant fleet. The closures will be offset by opening approximately 250 to 300 new locations this year, which we believe will drive improved sales and profitability." This strategy reflects Wendy's approach to realigning its resources toward locations with higher potential.
Indeed, the fast-food chain is not alone; the current climate has seen numerous other restaurant chains shuttering locations. Notable brands like Denny’s, which recently announced plans to close up to 150 of its locations, and Shake Shack, which has also cut back its number of stores, are just part of the trend. Even Red Lobster made headlines for filing for bankruptcy protection earlier this year, compounding the industry's challenges.
Despite the struggles across the sector, Tanner remains optimistic about Wendy’s broader strategies. Current sales figures reveal the restaurant chain's locations open for at least one year posted only modest growth—exit numbers reflect less than 1% increase during the first half of 2024. The company had 7,292 restaurants worldwide at the end of the third quarter, with more than 80% of those, or 6,011 locations, based within the United States.
The closures come on the heels of the company's initiative to remain competitive nonetheless, focusing on attracting customers with new menu items and collaborations. For example, the recently launched Salted Caramel Frosty and SpongeBob SquarePants-themed meals have spurred excitement among fans, highlighting Wendy's commitment to innovation even as they make hard decisions. Tanner remarked, "Our system is incredibly healthy; we are confident we will deliver elevated growth."
When examining the logistics, Tanner affirmed the company conducted thorough reviews of its expansive restaurant portfolio to assess sales performance and profitability potential. A focus on outdated designs and poor locations has already been noted as part of the reason for the closures, with Tanner remarking, "Restaurants set for closure simply don't build our brands. We're aiming to replace them with newer locations showcasing improved sales."
Looking forward, Wendy's is making moves to modernize its infrastructure—its current strategic designs include updated kitchen equipment, pickup windows, and attractive interiors to welcome diners. The emphasis on new technologies and customer experience aims to cultivate long-term sustainability for the brand.
With restaurant closures only expected to increase amid economic struggles such as rising labor costs and inflation impacting consumer spending habits, Wendy's is strategically repositioning to face the changing market. Competitors are quickly following suit, such as TGI Fridays, which has already closed over 50 locations this year alone, emphasizing how the pressure to adapt is widespread among familiar brands.
Wendy's approach to growth and restructuring aims to create pathways to success amid economic uncertainty. Tanner encapsulated the brand's intentions succinctly, stating, "We anticipate similar numbers of closures and openings, which results in fairly flat net unit growth. This is not just about closing restaurants; it’s about building for the future."
This dual approach of shuttering underperforming restaurants and launching new ones is indicative of broader trends across the fast-food industry, where brands are reassessing their expansion formulas against the backdrop of the unpredictable post-pandemic economic environment. For Wendy's, ensuring the best possible dining experience should keep it relevant and profitable on the crowded fast-food stage.
Overall, Wendy's plans signify the evolution of the company as it tackles operational challenges head-on. The decisions may lead to short-term losses before future gains, but Wendy's hopes to turn the tides with more strategic restaurant openings, ensuring it remains competitive for years to come. Kirk Tanner's continual emphasis on health—both financially and systemically—will be pivotal for the fast-food chain going forward.
