Wendy’s Q3 report was an interesting mix of numbers that may not be exactly what they seem as QSRs continue to rely on menu-price increases to buoy results in a difficult marketplace. Wendy’s North American same-restaurant sales increased 3.1% for the period, ended Sept. 27, 2015. And President/CEO Emil Brolick claimed that average unit sales “increased more than our same-restaurant sales growth would indicate, due to the number of reimaged restaurants that were out of our comparable sales base during the quarter.”
But interestingly, same-store sales for the 852 company-owned Wendy’s were up just 1.7%, compared with a 3.3% rise at the 5,635 franchised stores. Why the difference? The company explained that franchisees were “more aggressive” in menu pricing, suggesting that the comp increase wasn’t the result of more customers coming to Wendy’s.
In fact, traffic dipped. The 10-Q form filed today explains that company-store “same-restaurant sales during the third quarter of 2015 increased due to an increase in our average per customer check amount, in part offset by a slight decrease in customer count.” That small traffic decrease has been reported across the first nine months for Wendy’s.
And why was the average check up at company units? Price again. The 10-Q reports that the “average per customer check amount increased primarily due to benefits from strategic price increases on our menu items and changes in product mix.” So premium items such as the $4.49 BBQ Pulled Pork Sandwich and $2.99 BBQ Pulled Pork Cheese Fries offered during September had a significant impact on average check and on product mix. That’s not surprising, and not a negative, but it is important in fully assessing the strength of Wendy’s Q3.
The company also reported that the company-store restaurant margin increased to 18.8% in Q3, compared with 15.5% a year ago. The company credited “higher same-restaurant sales, the positive impact from the Company’s Image Activation reimaging program and lower commodity costs” for the impressive gain.
The other important numbers that were discussed during the call were “4 for $4.” Wendy’s current value proposition bundles a Jr. Bacon Cheeseburger with a 4-piece Chicken Nuggets serving, fries and a drink for $4, and Brolick said it has performed well. He said consumers are moving away from traditional discounted-item menus (such as its Rightn Price Right Size Menu) and prefer bundled value meals. This is especially true of those looking to spend from $4 to $6, he said. Expect more such bundled meals in the future.
Brolick mentioned a black-bean veggie burger that has been testing in Columbus, Ohio (where it is headquartered). Not discussed (and not asked about by analysts) were sales performance by any of the other products the chain is testing, including the previously reported Green Chile Quesoburger, Bacon Mozzarella Cheeseburger, Sweet Thai Chili Chicken Sandwich and Crispy Chicken BLT.
In a handful of stores, Wendy’s is testing mobile purchasing technology, using the CurentC platform (used by Starbucks), that not only allows smartphone ordering but also alerts the Wendy’s unit when the customer pulls in so that food can be prepared fresh and hot (rather than held).