Wendy’s has made no secret of its desire to build more locations and, earlier this week, said it expects to have 8,000 restaurants globally by the end of 2025, which would be 17% more than it operated at the end of 2020.
Getting there won’t be easy, especially in the U.S. restaurant market where competition for the types of sites Wendy’s wants—those with drive-thrus—is as intense as it has ever been.
But the Dublin, Ohio-based company has a solution for that: Find other types of locations that could have a drive-thru, such as closed units once operated by a competitor, an old bank building or even a closed retail shop.
Wendy’s is getting more aggressive in converting real estate into a Wendy’s location, adding incentives for operators and creating internal teams whose job is to find those locations and speed the process of turning them into a restaurant with a drive-thru.
“We created a task force last year that is proactively reaching out to developers, landlords and retailers asking how we can be a partner to them,” Wendy’s Chief Development Officer Abigail Pringle said in an interview. “We’re looking at retail sites, we’re looking at banks, we’re looking at competitors, which of course are my favorite.”
Wendy’s has picked up its domestic growth in recent years, thanks largely to incentives for operators to build new units and commitments connected to the sale of restaurants. Yet its unit count domestically remains largely where it was a decade ago, at just under 6,000 U.S. locations. All of its overall unit growth has come internationally, where the company’s development has picked up speed, even if it remains far behind competitors McDonald’s and Burger King.
The company now believes it has a more compelling offering for operators to build those units. The chain recently added breakfast, which has generated more sales per location and, executives said, improves overall profitability for franchisees. CEO Todd Penegor said the profits from breakfast are a “game-changer for our economic model.”
“This will be a benefit to overall franchise health and should be a tailwind to new restaurant development as unit economics have improved significantly as a result,” Penegor said.
Nothing convinces franchisees to grow like higher sales and profits. But Wendy’s has increased the number of incentives available to operators who open new units in the form of breaks on royalty and other costs. Those incentives can total up to $250,000 per unit.
But they also feature incentives for converting existing real estate that could amount to $170,000 per location. The incentives could help generate cash-on-cash returns for new units of 15% to 20%, Plosch said.
Finding the locations is a different matter, however. Numerous restaurant chains are looking for drive-thru locations and have ramped up their own efforts to find them. Chipotle Mexican Grill last year started calling operators of existing locations, offering to buy out leases.
Chains such as Shake Shack, not traditionally known for drive-thrus, have jumped into the game. And Starbucks has shifted development to suburban drive-thrus.
All of this makes it more difficult for restaurants to find good sites, which has companies expanding their efforts. For Wendy’s, it means looking at sites that weren’t originally a restaurant.
Pringle said Wendy’s over the past year has sped up the time it takes to design a conversion. “The time from the identification of the site to getting into permitting has been cut by 70%,” Pringle said. “It’s significant. We have a concentrated focus of time and talent.”
That has also intensified the need to get creative, given the different dynamics of these types of sites. It’s particularly important as the types of sites Wendy’s is targeting can vary greatly in size. “Not every kitchen is the same and not every drive-thru is the same,” Pringle said. “We have to think differently and be creative. It’s really changed the game.”
Pringle said the company has “dozens” of these conversions already in the pipeline.
Wendy’s isn’t just looking at conversions to adapt its real estate to the market. It is also developing drive-thru-only sites that don’t have any seating.
Such sites have grown more common in the post-pandemic market as drive-thru demand has skyrocketed, which has more chains considering such options, especially as the need to be flexible has increased.
Pringle said Wendy’s had drive-thru-only sites decades ago, but the shifting market has made the idea more palatable again. Thee company has several of these “concentrated versions of Wendy’s” in development.
“’A long time ago, various brands tried it,” Pringle said. “But that was a different time and a different place.”