Wendy’s pulls back on breakfast marketing and withdraws financial forecasts due to COVID-19
Wendy’s is changing its marketing plans and withdrawing its financial forecasts, with the coronavirus pandemic having led to a major slide in sales—and just as the chain was making strides with a big push behind its new breakfast menu.
The entire restaurant industry is feeling the effects of the pandemic, which has forced operators to close restaurant seating areas to encourage social distancing and has led to a significant dropoff in visits to restaurants as more people remain at home. But few chains had such significant plans for March as Wendy’s, with the heavily promoted launch of its breakfast menu on March 2.
Wendy’s says sales at longstanding restaurants were up about 4 percent in the first two months of the year and soared about 15 percent in the first week of March, driven by its breakfast push. Then, coronavirus took hold. In the week ended March 22, same-store sales plunged about 20 percent. Wendy’s says quarterly same-store sales through March 22 were up only 2.8 percent.
On Feb. 26, Wendy’s said it planned to spend about $40 million to $50 million on breakfast advertising, as part of the total $70 million to $80 million dedicated to breakfast advertising this year, with the rest coming out of the ad funds it already gets from franchisees. Now, roughly a month later, the situation is drastically different. Wendy’s says it is pulling the incremental marketing spending it had planned for breakfast this year and putting those funds toward supporting its franchisee system “in other ways.”
Over the next three months, it is extending payment terms for royalties and marketing funds by 45 days and deferring base rent payments on restaurants leased to franchisees by 50 percent. It is also giving franchisees another year to remodel and build new restaurants.
Wendy’s said both the company and its franchisees “remain fully committed to breakfast” and will continue to put media dollars behind it “as we believe it will be beneficial to both breakfast and rest of day sales,” but did not outline in a statement just how much of its marketing going forward would be dedicated to breakfast. Wendy’s said the early breakfast results were driven by its social and digital campaigns. Those included having former McDonald’s chef Mike Haracz hyping the breakfast items in social videos that were later reworked into a tv spot.
The company is now putting more emphasis on ads promoting delivery and digital, including offering deals on digital and mobile to entice patrons. It is using its displays at stores to remind people that the restaurants remain open for drive-thru and delivery.
Wendy’s has already taken steps such as closing down its dining room areas and focusing on a mainly drive-thru and delivery. Drive-thru, it says, now accounts for about 90 percent of its overall sales. Typically, fast feeders get about 70 percent of sales from the drive-thru.
Digital, meanwhile, is now 4.3 percent of sales, up from 2.5 percent in 2019, due to growth in delivery, where it works with DoorDash, Grubhub and Postmates.
Wendy’s says 235 restaurants, or about 3.5 percent of all Wendy’s restaurants, are temporarily closed, including 189 in international markets.
Wendy’s is withdrawing the 2020 forecast it gave four weeks ago, which called for systemwide sales of about $12 billion to $12.5 billion, and its long-term outlook issued in October, which predicted systemwide sales would increase about 4 percent to 5 percent a year from 2021 to 2024.
Wendy’s is the latest major restaurant chain to outline the impact COVID-19 is having on its results. On March 24, Yum Brands, which runs KFC, Pizza Hut and Taco Bell, said it expected its same-store sales would decline in a mid-to-high single-digit range in the first quarter and warned of a more significant hit in the upcoming second quarter. On March 25, McDonald’s said the financial hit from the pandemic "could be material."