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Wendy's is 'widening the share gap' against other quick-service burger chains: CEO

Wendy's CEO Todd Penegor sits down with Yahoo Finance's Brian Sozzi to discuss first-quarter earnings, consumer trends, retail competition, and the integration of AI to boost customer experience despite the economic slowdown.

Video transcript

JULIE HYMAN: Wendy's reported a beat on the top and bottom line in the latest quarter, but the real news there might be the company adding AI technology to its drive-through windows. Yahoo Finance Executive Editor Brian Sozzi talked to the Wendy's CEO, Todd Penegor, to discuss the quarter.

TODD PENEGOR: When you look at the health of the consumer, we have seen items per transaction come down a little bit, but not materially. And within our menu, we haven't seen a lot of mix shifting go around. In the first quarter, we sold more large hamburgers than we have in the last six-plus years at a time when we have a trade up from 4 for 4 into a $5 Biggie Bag into a $6 Biggie Bag.

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So we feel like we've got a good menu construct to bring folks in for one more visit, drive one more dollar. That works for the consumer but also works for our operators too along the way. And when you look at our relative value to what's out there in the grocery chains, for a fresh-prepared, high-quality meal, we sit in a really good spot to continue to compete well.

BRIAN SOZZI: Interesting you mentioned large burgers, Todd, because I've been talking to a lot of the CEOs in the sit-down restaurant industry. And they have seen good amount of traffic from people that want to feel fuller. I guess, get more bang for their buck.

So what you're saying is consumers are coming more into your restaurants and buying larger burgers because they see more value in that?

TODD PENEGOR: Yeah, well, you look at the course of 2022, we did see a lot of trade down from the sit-down restaurants, from the mid-scale casual restaurants. We're not seeing as much trade down today, but those customers that came in and tried us last year when they traded down are sticking with us.

And you're seeing it across all income cohorts. We continue to hold our share in the under 75,000 income cohort, continue to do the same on the over 75,000. And we're seeing a lot of growth with that over 75,000 income cohort. And they're showing up at Wendy's more often, which is a good thing for our business too.

BRIAN SOZZI: That cohort, annual income over $75,000, where do you think they're trading down to. Obviously, they're going to Wendy's, but is there another chain that you feel that you're gaining market share from?

TODD PENEGOR: Well, no. When you look at it in total, I mean, QSR burgers is doing that-- as a subcategory of all QSRs is doing quite well. Obviously, our biggest competitor had another nice quarter. But when you look at other QSR burger competitors, we're widening the share gap against them.

So we continue to do quite well in a very competitive category. And when you look at where folks are trading around and in different categories, you just see in that there's a lot of winners and a lot of losers. It's not really tied to one specific category within QSR. But QSR continues to be the place to be speed, convenience, affordability are core to what the consumer is looking for today. We'll continue to differentiate on the great quality messaging that we've always had.

BRIAN SOZZI: A couple moments ago, Todd, you mentioned a competitor. Let's call them Ronald Arches. Since we last spoke, they have updated their buns. They're now melting onions on a burger. To them, this is mind-blowing. Do you have to respond by changing how you make your burgers?

TODD PENEGOR: No, we're super proud. Fresh, never frozen across our whole lineup on our hamburger business. Been who we are from day one. You think about what we've done on the grills and our upgrades that we're making in our restaurants right now today to move to what we call a DSG 2.0, which creates a better sear, more juicier hamburger, and cuts the cook time in half, so everything can be made to order.

Us doing everything from a full customization standpoint to really differentiate from other competitors. Our fresh message is strong. We saw that in the first quarter. We talked about Square's the Beef is a big campaign, a knock back to our old, you know, Where's the Beef campaign. And it resonated with consumers.

That's why we sold a lot of large hamburgers during the first quarter, and we'll continue to do that. I think our operational procedures make the best hamburgers in the business, and we just got to continue to execute that day in and day out in the restaurant.

BRIAN SOZZI: Well, speaking of operational procedures, you are now pushing into the world of AI. Do you see yourself as an AI stock? Because now, you're going to be out there putting AI technology into drive-throughs. And walk us through this.

TODD PENEGOR: Yeah, not an AI stock. I see us as an innovation company, right? As we lean into innovation, how do we play the game different? How do we digitize a restaurant? We talked a lot about our global next gen design, really having a digital forward set to it all.

How do you get into the restaurant, out of the restaurant with a mobile grab-and-go order? How do you take a kiosk order? How do you take a mobile order for a grab-and-go, to pull up to the front of the restaurant or a delivery driver getting in and out faster? That's where we started.

Now we're really thinking about, how do we take some of the friction and make the experience even more seamless at our restaurants? How do we set our employees up to be in a position to succeed and make their lives a little bit easier in the restaurant, get them positioned to work the grill station, get them positioned to make hot and juicy hamburgers fast and accurate every time, get them out the door and handed fast with a smile? That's what we're trying to do.

And taking the slowest point of the order journey out and really trying to make sure that nothing gets lost in translation, everybody has a better experience. And ultimately, driving more speed and throughput in the restaurant so we can deliver on the promise that you get in and out of a Wendy's fast with great tasting food every single time.

BRIAN SOZZI: How intense is this going to look, that drive-through experience? So let's use me as an example, Todd. I come to Wendy's at 12:00 in my two-door sports car. Maybe I was out, maybe I wasn't whatever it was. Is that drive-through experience going to know what I want to eat as soon as I drive up?

TODD PENEGOR: Not today. So what you're going to see today is basically just taking out the traditional order taker. You won't even know that it's AI taking your order. But you'll be talking to the voice of Wendy's, be it, a consistent voice. It may upsell you along the way today.

BRIAN SOZZI: Todd, is it your voice? Is it your voice?

TODD PENEGOR: It's not my voice.

BRIAN SOZZI: OK, just wanted to check.

TODD PENEGOR: God, help us, Brian. But no, we'll have a consistent voice out there. But what we'll have on the digital menu boards is a confirmation, so you know that your order was taken right. You'll get to see it real time. And then, ultimately, we'll get you through the restaurant very quick.

So when you think about different languages, different dialects, we'll be able to quickly make sure that nothing gets lost in translation from a customer or an employee perspective. But over time, as you start to think about, how do you take a digital menu board, how do you make it a smarter digital menu board, how do you connect the voice AI to digital menu board, ultimately, to our loyalty program?

How do we make sure that we got a more personalized, customized menu to support what Brian wants when he comes to the restaurant? And how do we trade you up when you come into that restaurant in the future? Those are all opportunities. A little further off, obviously. But you've got to start laying the pipework in the platforms today to really bring all of that to life.

BRAD SMITH: And that was our own Brian Sozzi with Wendy's there.