The past couple of years for Wendy’s could best be described as volatile. The company replaced CEO Todd Penegor with Kirk Tanner in early 2024. Tanner stuck his foot in his mouth shortly thereafter, using the term “dynamic pricing.” He was gone 18 months later.
The chain went nearly a year without a permanent replacement before it hired Bob Wright to fix things. Its same-store sales have fallen off a cliff, falling in each of the past six quarters, including 7% in the second period. Traffic to the chain’s restaurants was down 12.5% last quarter.
It is now smaller than rival Burger King, which is seeing growing sales and will remain bigger than Wendy’s for the foreseeable future.
It was all too much for Nelson Peltz, apparently, who in February started preparing an offer to take Wendy’s private, and now has help in the form of mega-franchisee Greg Flynn and an investment group out of Abu Dhabi, at least based on a report in Financial Times.
Peltz’s interest in Wendy’s makes sense when you look at the past few years. He is the company’s largest shareholder, with 24% interest, both personal and through his Trian Fund Management. The company’s stock is down 64% over the past five years.
Yet Peltz has had plenty of time in the Wendy’s system. He first bought stock in the chain nearly 20 years ago, went activist on the brand, then bought it outright in 2008 through the Arby’s owner Triarc Companies, which he controlled.
Since then, Wendy’s total shareholder return is up 94.05%, or 1.44% annualized. That’s a positive return. But the S&P 500 Index is up 677% over the same period, meaning Peltz’s 24% ownership would have been better off spent on some index funds.
Peltz spent most of that period as a member of Wendy’s board or its chairman. So he’s exerted considerable influence on the operation of the fast-food chain. And the result has been a chain that is largely the same as it was when he started.
Actually, it’s not quite where it should be. Had Wendy’s global system sales kept pace with inflation over the time Peltz was in control of the brand, it would be a $28 billion system today. The chain generated less than $14 billion in total system sales last year, according to Technomic data.
Much of the challenge with Wendy’s has emerged in full over the past few years, and has revealed some weakness among franchisees that has worsened with the poor, post-pandemic operating environment.
Wendy’s average-unit volumes in the U.S. accelerated coming out of the pandemic, thanks to higher prices and the addition of breakfast.
From 2007 to 2019, the chain’s unit volumes grew at an average annual growth rate of 1.42%. From 2020 to 2024, they grew at 4.53%. A franchised brand that accelerates its growth like that should set it up for stronger unit growth and better overall franchisee performance.
Breakfast, which at one point was 10% of sales, was showing some real promise for a while. According to data from Technomic, 97% of consumers rated Wendy’s as “excellent” or “good,” a far better score than either McDonald’s or Burger King.
And yet, when sales fell starting last year, Wendy’s began letting operators cut back on breakfast.
The decision to allow operators to stop serving breakfast was done out of necessity, because too many franchisees were unprofitable. That is to the company’s considerable credit.
But that also speaks to the weakness of operators and is a big, red flag. It showed operator profit challenges that were likely there in 2020, when the company made compromises to convince franchisees to add the daypart. Its end could make it that much harder for Wendy’s to bring the daypart back, at least without a big corporate investment.
As we said before, Wright as CEO inspires some confidence, given his track record at Potbelly, his knowledge of the Wendy’s system, and his experience in operations, something the chain really needs. Assuming, that is, Wright remains at the helm of a post-deal Wendy’s.
The same goes for the presence of Flynn as an investor in Peltz’s group. At the very least, the go-private plan should feature a major voice that knows the right way to operate restaurants. Flynn owns the world’s biggest franchise operation and is a big Wendy’s franchisee. We generally like seeing franchisees with a presence on corporate boards.
Whether they can offset the influence of Peltz remains to be seen. Either way, it will not be an easy fix.