UK remains ‘the big opportunity in Europe’ for Wendy's

Responding to a question on an investor call following The Wendy’s Company’s results for the third quarter ended 2 October 2022, president and chief executive officer Todd Penegor, said: “Clearly in the UK is a macro backdrop that is a little bit more challenged, but we are still committed to building up that market.”

The business currently has nine company-operated sites and 25 sites in the UK overall, including delivery-only sites opened with Reef Kitchens. In addition, it has six new franchisees signed up, with the expectation they will begin opening sites within the next couple of months, including its first drive-thru location.

“Our big opportunity in Europe is to build out the UK first. We go on then to think about how do we get into Ireland, leveraging the supply chain that we have built up in the UK and then over time into Spain,” Penegor said.

In terms of the speed of its development in the UK and the rest of Europe, he said that given the consumer economic backdrop and macroeconomic backdrop it was a case of having to “watch and see”, and that time will tell as to whether it takes longer than originally expected.

Wendy’s chief financial officer Gunther Plosch said the business had seen some 'pretty hefty headwind of energy costs' in the UK – up some 50-60% for the company.

“That obviously puts margins under pressure,” he said. “I would also say that sales are slightly lower than what we had expected.

“Overall, its translated into about 50bps of headwind into our margin. Having said all of that, I think we think that this is temporary.”

He continued that in terms of the growth potential for the UK market, 'the structural economics around it are compelling'.

“It’s evident by UK entrepreneurs signing up as franchisees that they believe in the potential of those markets, so it’s a speed bump and not more.”

Penegor added: “I think that’s key… we are playing the long-term game. We do have start-up costs that go with opening the restaurants, but it’s a key pillar to really driving the growth across the region.”

Wendy’s international business, which includes its UK operations, saw systemwide sales growth of 18.3% in the third quarter versus 2021, with sales up 20.1% for the year to date. This compared to 7.7% and 4.6%, respectively, in the US.

Earlier in the summer Wendy’s said it was now expecting to have 35 UK restaurants open by the end of 2022​​ – down from the 50 to 60 previously spoken about in its first quarter update – but was still bullish about the market.