Wendy’s has been pushing new unit growth for years, believing its sales justify a larger number of restaurants in the U.S.
The problem? It just can’t get the permits.
The company on Wednesday said that permitting delays are putting a crimp on its expansion plans, likely delaying new openings. Wendy’s said those delays are getting worse.
“We continue to navigate substantial permitting delays in the U.S., which have intensified and are pressuring our new restaurant opening timelines,” CEO Todd Penegor told analysts on Wednesday. He noted that the restaurants facing these delays have secured sites, so if they can’t be done in 2023, they will open in 2024.
But the permitting delays continue to cause frustration for Wendy’s and other restaurant chains. Papa Johns, which like Wendy’s is eager for more new unit growth, earlier this month lowered its expectations for restaurant development, in part citing permitting delays in North America. At Wendy’s, the company expects 2% unit growth this year, a modest decrease from earlier expectations.
The permitting delays are coming amid skepticism of new restaurants with drive-thrus but are mostly due to workforce shortages at many communities across the country, which has created backups in the approval process. Many operators also say that public employees who now work from home are more difficult to reach, particularly on Fridays.
(For more on permitting challenges, read “Restaurants growth plans get stuck in red tape.”)
Wendy’s has made more aggressive new unit growth a centerpiece of its business plan, but it has navigated various challenges toward that goal. Some of them are due to corporate strategy changes, such as its recent decision to end its deal with the ghost kitchen provider Reef Kitchens—which at one point was slated to open up some 700 Wendy’s ghost kitchen units.
Other issues have also stood in the way, notably high interest rates that are discouraging new development. All that, plus development delays, have led Wendy’s to reduce its projections for new unit development, to between 7,600 to 7,800 restaurants to open globally by the end of 2025, a reduction of 900 restaurants. Wendy’s operates about 7,000 restaurants worldwide, 6,000 of which are in the U.S.
Still, Wendy’s wants more Wendy’s. “There are thousands of trade areas that sit untapped and without a Wendy’s,” Penegor said earlier this year.
The company has used development incentives to help operators build new units. Earlier this year, for instance, it announced a “Pacesetter” program in which the company will help franchisees build new units in exchange for a higher royalty rate, 5% of sales compared with 4% of sales.
Still, the permitting issue is temporary, executives said. And the company reiterated its belief that new unit growth will pick up in the coming years. It’s just going to take longer than expected because its restaurants are waiting for local officials to sign off on their projects.
“In the short term, clearly [there’s] a little bit of pressure on some of the permitting that may create a little bit of slippage into next year,” Penegor said. “But that really solidifies next year’s pipeline.”
“Look where we stand today,” he added. “We do have good visibility with strong pipelines, not only into 2024 but into 2025.”
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