When an analyst asked him where Wendy’s has the most growth potential, CEO Todd Penegor didn’t say “everywhere” but he may as well have.
“We’re clearly underpenetrated in major urban markets,” he said. But later, he added, “We also know we’ve got a lot of opportunity across the country in many of the smaller communities.”
The company’s strategy for getting there likewise involves a range of strategies that could get them into such divergent locations—notably its 200-unit deal with the ghost kitchen provider Reef Kitchens as well as its new franchise recruitment effort announced earlier this week.
“We believe we have the right plans to accelerate our growth even further,” Penegor said.
Of the 10 largest restaurant chains in the U.S., Wendy’s has the third fewest locations, with only the higher-priced, higher-volume chains Chick-fil-A and Chipotle Mexican Grill with fewer. McDonald’s has more than twice Wendy’s 5,900 U.S. locations and Burger King operates about 1,200 more units.
Yet Wendy’s has been adding locations at a greater clip than either of its rival big burger chains—albeit at a relatively easy pace. The brand has averaged about 0.5% annual unit growth over the past five years. Burger King has been largely stagnant, and McDonald’s has shrunk by about 800 restaurants over that period.
Wendy’s operates about 6,900 global locations, including 1,000 international units, and has plans to reach 8,500 to 9,000 by the end of 2025, a goal that features considerable domestic growth.
The company has taken some steps to encourage operators to add units. It added development agreements as it sold company-owned restaurants to franchisees over the years—to go along with remodel commitments.
But it has taken some new approaches to growth of late. The agreement to put its operations into 200 Reef Kitchens around the world, for instance, made it the largest chain in the U.S. to make such a broad commitment to ghost kitchens.
Reef operates ghost kitchens using repurposed containers in old parking facilities, primarily in urban areas, and it has been arguably the fastest-growing restaurant operator in the country. Two-thirds of Wendy’s locations will be in Reef units in the U.S., with the remainder split between Canada and the U.K.
Wendy’s believes Reef can get the company into urban markets where it has less of a presence. “Reef is playing a big role on that with the delivery kitchens,” Penegor said.
The company is happy with the partnership so far, executives told analysts. Reef Kitchens have an average unit volume between $500,000 and $1 million. Wendy’s collects a 6% royalty rate from Reef—50% higher than its traditional royalty.
The delivery-only kitchens can get Wendy’s into these urban markets with a low investment. But the company is making a big move into franchise recruitment with its recently announced “Own Your Opportunity” initiative.
The effort is targeting a more diverse set of investors with financing and other assistance. The company is even creating a fund that will build locations to suit in underserved areas and then sell them to prospects that would otherwise struggle to get financing.
“We’re building some new relationships with various banks to ensure that we can provide more access to capital to smaller franchisees entering the system,” Penegor said. The build-to-suit program, he added, will give people an opportunity to come into the system with a smaller capital outlay, given that the restaurant will be up and running.
Wendy’s also lowered its financial requirements. “We think all of that will significantly drive opportunities to bring more diverse franchisees into our system, allow us to get into some of our underpenetrated markets and continue to accelerate our growth,” Penegor said.
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