Business 153(Tue, Wed, Thur) – Wendy’s Is Accelerating Its Growth Through Both Traditional And Non-Traditional Formats

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WendyÕs hamburger business logo

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1. One takeaway from Wendy’s Q4 earnings call last week is the company is very clearly in growth mode. However, its ambitious development plan looks a little different than it has in the past. The chain announced plans to open 150 to 200 Reef ghost kitchens this year, up from its current 30 such locations. In August, Wendy’s announced a development commitment to open 700 Reef kitchens across the U.S., United Kingdom and Canada by 2025.

Wendy's Company to set up 700 delivery-only kitchens in cooperation with REEF | PotatoPro

2. These delivery-only units are essentially kitchen trailers located in parking lots and are much cheaper to operate than a traditional brick-and-mortar restaurant. That Wendy’s is taking a sort of hybrid approach–traditional and non-traditional–for its expansion could create a significant advantage, as no other peers in its immediate competitive set seem to be pursuing the same path at this scale.

3. Or, it could prove to be a risk to leverage a fledgling model that has experienced some growing pains. That said, Reef (and the ghost kitchen space in general) has caught the interest of both investors and operators and provides Wendy’s with a big upside, according to Kurt Kane, U.S. president and chief commercial officer.

Wendys has many stores here in Japan, Do you think a Japanese based fast food chain could become popular overseas? Which one and why?  

4. “Reef and ghost kitchens are an opportunity for us to go faster into areas where we’ve been significantly underrepresented for years. For us to go into high density, high rent areas, we didn’t have a great asset model historically to do that. Reef allows us to go into areas where we have a lot of white space and leverage those vessels, and to get people to access the brand. That’s the unlock,” Kane said during a phone interview Friday. “It is complementary to our more traditional development work.”

5. During a separate interview in December, Wendy’s International President and Chief Development Officer Abigail Pringle added that the Reef partnership allows the brand to better meet consumers where they are and meet their changing expectations. Consider digital sales, for example, which have increased by 75% for Wendy’s throughout the past year.

6. “For customers, convenience trumps everything. We think that about that when we look at all of our different assets to serve the market. We have to think about what the customer demands are now and how we change to meet them. We need to think about how we create the same food and brand experience through those different channels,” Pringle said, calling the Reef partnership “unbelievably successful.”

Have you ever heard of ghost kitchens? – re:article

7. That said, non-traditional units pull in lower average unit volumes. CFO Gunther Plosch noted on the earnings call that they’re still very attractive, however, as they are accretive to Wendy’s loyalty rate. The chain collects about 6% on royalties from Reef locations, for example, versus 4% for traditional locations.

8. Across the entire system, Wendy’s has experienced six consecutive years of net new unit growth and its highest net new unit growth in nearly two decades. Notably, Wendy’s growth story extends well beyond new units. According to its recent earnings call, the company has experienced double-digit sales increases over 2019 numbers, margin increases, overall traffic and breakfast share gains and a 75% uptick in loyalty program members.

Why do you think companies like wendys are experience such growth? What do you think the future of fast food will be?

The global fast food market has several successful players, do you think there is room/potential in the market for a completely new competitor (outside of the stereotypical cuisine)?

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