It was recently revealed by Wendy’s that as part of its goals to scale down the branches, it will be closing an additional 140 restaurants in the US by the end of the year on top of the 100 it announced in May that it would be closing up. The answer to this concerns why the company has decided to shutter underperforming restaurants as part of a larger restructural plan. However, that does not mean that Wendy’s growth is over, as the fast-food chain has plans to launch 250-300 new restaurants this year. This initiative aims to enhance corporate branding as it improves its facilities in focus on markets with better decor fittings and overall atmosphere for customers.
When asked how investors could comprehend closure of these outlets, Kirk Tanner, President and CEO of Wendy’s, made clear the rationality during a conference call. Many of the restaurants in this category were not only identified as the worst performing in the Wendy’s chain but were also located in unsuitable markets. Tanner stated that these changes are necessary for the health of a 55-years old brand that has some restaurants whose years have passed. “You look at a brand that is 55 years old, and some of those restaurants are more than just old,” he said. Such locations are prone to disappointment as today’s patrons are more concerned with cutting edge, warm dining spaces than before.
Although Wendy’s has not provided a detailed list of the specific locations that will close, Tanner indicated that the closures will be spread throughout the United States. The company’s strategy focuses on reallocating resources from outdated, low-performing restaurants to support the opening of new locations that are expected to be more competitive in today’s market. Tanner expressed confidence that these new restaurants will perform above the current average, allowing the brand to offer a better overall experience. “Our focus is on building new restaurants because we know they deliver well over the average of these poor-performing restaurants,” he added. This approach aligns with Wendy’s goal to continually elevate customer satisfaction through thoughtfully chosen, high-potential locations.
As of the third quarter of this year, Wendy’s has a total of 7,292 restaurants globally with around 80% of them based in the U.S. The concept of closing some restaurants, and at the same time, opening new ones is an indication of how the market changes, and the U.S. consumers have in fact, refused to accept higher prices on the menu, with an example of the ongoing economic conditions in the country. To illustrate, Wendy’s same-store sales, a measure that includes sales from only those locations that have been open for at least a year in the US, advanced by less than fifty-five percent in that country in the ancillary half of this year. The increase in sales has been very minimal which means that now like other big chains in the fast food sector, even Wendy’s is fighting external economic challenges that are cutting across the restaurant business.
Investors have reacted well to the changes that have been made by Wendy’s in its activities as the share price went up by 3.5% in midday trading on Friday. This increase in share price also shows that the investors have confidence in the vision of the brand for implanting its plan of working on strengthening its most productive locations.
The restaurant industry’s state in the U.S. does suggest that there is going to be a bumpy year cutback on sales growth since consumers tend to be more price conscious. This has happened to a few popular restaurant chains as well. A few months later in October, Denny’s revealed that it would be shuttering 150 restaurants by 2025 and as of May, after closing several outlets, Red Lobster petitioned for bankruptcy. Such issues that are prevalent in the industry point to the thin line most food service brands are trying to walk in terms of attracting consumers and dealing with costs. Wendy’s rationale for closing down certain restaurants and opening new ones is due to this pressure and demonstrates the organization’s desire to continue being significant in the future.
