Dive Brief:

• Wendy's has expanded its partnership with Reef Technology, which was originally a pilot of eight units in Canada, to open 700 delivery kitchens over the next five years in the U.S., Canada and the United Kingdom, according to a press release. About 50 kitchens are expected to go live this year, and the remainder will launch between 2022 and 2025.
• The fast food chain has also created a $100 million strategic build-to-suit development fund, which will use additional cash obtained as part of Wendy's debt refinancing computed during Q2 2021, to drive new restaurant growth. The development fund is expected to drive about 80 to 90 franchise restaurants between 2022 and 2025.
• With these latest initiatives in place, Wendy's has raised its 2025 development target from 8,000 units globally to between 8,500 to 9,000 locations. 

Dive Insight:

Wendy's aggressive growth strategy is already paying off. The company is on track to reach 7,000 units globally by the end of 2021, CEO Todd Penegor said during an earnings call on Wednesday. 

Wendy's latest ghost kitchen commitment follows its goal to have 30% of its new units come from nontraditional channels. Its partnership with Reef will allow Wendy's to open more urban locations, where the chain is dramatically underpenetrated, Penegor said. The company expects these units to have sales ranging from $500,000 to $1 million per unit, he said, adding that royalties will be about 6% in the U.S. and 5.5% in the U.K. 

Wendy's has also been aggressively working to attract new and existing franchisees as part of its growth plans.

"This [development fund program] along with newly implemented lower liquidity and net worth requirements for new franchisees will transform how we recruit and engage diverse franchisees into the brand," Penegor said. "Real estate and construction teams will be on point to secure and build the locations, making it a turnkey solution for a franchisee to open a new restaurant."

Penegor said this program is expected to help attract smaller franchisees and allow them to scale up. The company provides the building while the franchisee invests in signage and equipment, Wendy's CFO Gunther Plosch said during the earnings call, adding that Wendy's receives a slightly higher royalty rate and rental income from the franchisees. 

Along with its development fund, Wendy's 2021 "Groundbreaker" new restaurant incentive program, which offers up to $200,000 in incentives, led to an incremental commitment of about 240 new restaurants in the U.S. and Canada that will help it boost its growth plans, the press release said. 

The company currently has about 70% of its planned restaurants in 2021 open or under construction through the first week of August, and 70% of its global new restaurant pipeline has development commitments in place through 2025, Penegor said. 

The chain is also posting strong same-store sales growth in the U.S., which will help the company attract more franchisees. U.S. sales, which accelerated during the second quarter, were driven by improvement in customer accounts and continued strong average checks, Penegor said. Its U.S. same-store sales were up 16.1% during Q2 2021, according to the press release. Its same-restaurant sales on a two-year basis during the quarter was up 11.7%. The company also saw record average unit volumes on a trailing 12 month basis of almost $1.9 million, driven in part by growing digital and breakfast businesses, Penegor said. 

Wendy's breakfast business continues to be profitable and sales grew 10% over the first quarter driven by its $1.99 honey butter chicken biscuit and two-for-four promotions, he said. The company expects breakfast sales to be up by 30% in 2021 with plans for it to make up 10% of total sales by the end of 2022, Penegor said.