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Investors are losing their appetite as Wendy's takes a second bite at breakfast

On 4th February, US fast-food chain Wendy's announced that they will begin offering breakfast options nationwide starting March 2nd 2020. This is the second time Wendy's has tried to crack the breakfast market after a failed attempt only a few years ago. As the battle heats up to win the US breakfast wars, her's some thoughts and choice stats on why investors should care.



Over the last two months we have interviewed more than 120 restaurant chains in the US to understand dynamics in the breakfast market, specifically focused on fast-food establishments. 


Wendy’s bid to enter the US breakfast market on March 2nd shows how fast food chains are evolving to stay competitive in a market where customers are

increasingly looking for low-cost, home-made or healthy options. 


McDonald's generates 24% of their revenue from breakfast trading


The breakfast market is becoming an increasingly important battleground for restaurant chains. Our interviews with more than 120 restaurant store managers in the US in the last few months underscores this with more than 42% indicating that they currently offer breakfast options in-store or via food delivery apps and a further 18% were considering launching a breakfast option in the next 6 months.


Data compiled by Woozle Research suggests that in 2019, breakfast trading was the only time period of the day which registered YoY revenue growth for the restaurant industry in the US. In fact, last year breakfast trading accounted for about 24% of McDonald's revenues and was it’s most profitable daypart.


The Honey Butter Chicken Biscuit will be one of the items available at Wendy's in the morning


The biggest concern for investors in Wendy’s at the moment is understanding whether or not these aggressive growth plans and costly launches will make enough long-term gains to justify the short term pain to profits. The breakfast market is highly competitive and there’s no guarantees that Wendy’s will be able to steal share.


This isn’t new for Wendy’s. They tried to enter the breakfast market a few years ago in an effort that broadly failed. Management have said they have learned lessons from the last attempt. The key differences this time round are that most sites will be able to offer breakfast menus without having to shell out 10,000 USD on new equipment, they will only need 3 employees to work the shift rather than 4,  and the breakfast menu will be launched nationwide rather than just a few areas. To add further weight to the initiative, management have said they plan to hire an additional 20,000 staff and spend more than 20 million dollars in advertising around the initiative. 


Kitchen capex for franchises last time round made breakfast unprofitable


Investors remain cautious on the prospects for the initiative given the high level of upfront capital required to launch a breakfast menu nationwide twinned with the uncertain payoff structure, additional labour hours in a tight job market, and the need to gain share in a highly competitive and fiercely loyal breakfast market in the US. 


It’s fair to assume that the probability weighted performance expectations for the breakfast rollout skew to the downside at least until we see some initial trading data from Wendy’s. 


A map of all Wendy locations in the US from Thinknum


Woozle is launching a US fast-food chain survey to give clients a store-level view on how Wendy’s and nearby competitor sites are trading pre- and post- the breakfast roll out on March 2nd with a particular focus on sales, expectations,

pricing, and customer feedback. 


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