Dive Brief:

• Wendy’s will introduce its new breakfast menu in Q1 2020, but the company is considering offering franchisees an opt-out option for the daypart after a year, according to Nation's Restaurant News.
• During the company’s Q3 call on Wednesday, CFO Gunther Plosch said franchisees will "have an opportunity to potentially raise concerns" if breakfast isn’t generating sufficient returns. 
• The company is investing $20 million in the launch, which includes hiring 20,000 new employees and advertising to raise awareness. 

Dive Insight:

Such a cautious approach perhaps shouldn’t be a surprise. Wendy's has tried breakfast multiple times before, but has failed to get the daypart to take off.

This time around, however, Wendy's seems much more optimistic about making a dent in the market. During the earnings call, CEO Todd Penegor said he expects breakfast revenue to grow to 10% of sales. For context, McDonald's, which has had breakfast in place for nearly 50 years, generates about 24% of its sales from breakfast. 

An opt-out opportunity could act as a sort of safety net for franchisees and perhaps ignite more willingness from them to make it work, on top of the company's $20 million investment. It could also create an added layer of trust between corporate and operators.

Offering franchisees some control over their own business has become a major narrative in the quick-service space. McDonald's had to navigate franchisee grievances lately. It extended some of its timeline requirements for remodels, ended its exclusive partnership with Uber Eats amid concerns over the operating cost and ceded control of all-day breakfast to operators, all of which helped mend fences. During the Q2 earnings call, former CEO Steve Easterbrook said "we're in a far better place … Ultimately, the mood of the operators, I think, is feeling much more confident." It's also a good business practice. If franchisees aren't succeeding, the company's overall brand health will suffer. 

Still, Wendy's has its challenges with breakfast that will require more than goodwill and optimism. The daypart is fiercely competitive, as evidenced by McDonald's recent loss in market share to players like Taco Bell and Chick-fil-A. It's also habitual, so if Wendy's can't create enough awareness to push its breakfast to consumers' top-of-mind, it will struggle. 

There may also be a few challenges with the opt-out option, including fractured messaging. If Wendy's is pouring a significant amount of money into advertising the breakfast daypart, but a certain market has opted out, that could leave customers confused at best. It also sets a potential expectation for opt-ins with other corporate-driven decisions, which could cause a disconnect in the system. 

For now, however, as Penegor noted during the call, the franchise system is fully aligned to this launch. And in fact, the company has already offered up the opportunity to some restaurants to opt-out due to their location, but very few restaurants decided to do so, he added. Perhaps that's because breakfast remains one of the few growth channels in the quick-service space. According to The NPD Group, the breakfast daypart continues to outpace the rest of the industry's growth.