Wendy’s CEO: 'It’s still tough out there'

Brian Sozzi
·Executive Editor

The fast-food industry is finding that making a fast buck is still pretty hard despite a 3.7% U.S. unemployment rate and rising wages for consumers.

“Everybody is trying to figure out how to get traffic into their restaurants,” Wendy’s Co. CEO Todd Penegor told Yahoo Finance. Penegor said consumers earning under $45,000 a year — a key demographic of fast-food restaurants — continue to spend cautiously amid health care and rent inflation. “It’s still tough out there,” Penegor remarked.

Wendy’s (WEN) surprisingly saw its North American same-store sales decline 0.2% in the third quarter, spurred by pressure on traffic to its restaurants. Traffic challenges are a theme that played out across fast food in the third quarter. Dunkin’ Donuts (DNKN), McDonald’s (MCD) and even Starbucks (SBUX) saw tepid traffic in the quarter even in the face of a barrage of one-time deals and new products.

Penegor told Yahoo Finance that price points in the fast-food industry may be a touch too high right now relative to what it costs for people to eat at home. That reflects fast-food companies pushing through price increases in recent years to offset hourly wage and other input cost inflation.

Wendy’s will continue to move forward with delivery and new products.
Wendy’s will continue to move forward with delivery and new products.

Food away from home inflation rose 2.6% for the twelve months ended in September versus a 0.4% increase for food at home, according to the latest consumer price index data.

“We have to be conscious of the gap between the cost of food at home and food away from home,” Penegor said. “We have to get smarter as we have priced up on the core and premium part of the menu, but [also have to offer] sharper prices on the value side.” To boost sales, Penegor said Wendy’s will continue to push into delivery (50% of Wendy’s restaurants in North America now have delivery) and offer more snacks in the early afternoon hour.

Dunkin’ Donuts is taking a different approach: getting into an entirely new category like espresso drinks.

“We like this niche we have carved out, it’s about being the best Dunkin.’ We are not in this discount swamp, we are building a better experience on the coffee side,” Dunkin’ Brands Group CEO David Hoffmann told Yahoo Finance.

Meanwhile, McDonald’s will expand its breakfast offerings to grow its morning business.

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Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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