This Burger Chain’s CEO Is Taking on Chipotle Mexican Grill

Wendy's has high ambitions.

Jul 30, 2014 at 9:00AM

Satellite
Source:  Wendy's

"We're the cut-above brand, and we've been about that for 45 years. And we've been about fresh great tasting food from day one," stated Emil Brolick, CEO of Wendy's (NASDAQ:WEN), in an interview with CNBC. He dismissively referred to Chipotle Mexican Grill (NYSE:CMG) as "the new QSR," or quick-service restaurant, and a number of his arguments were compelling.

Brand transition
During the interview, Jane Wells of CNBC described the new image of Wendy's as a "Chipotle feel." She pointed out that the company is in the middle of a brand transformation and asked if Wendy's is now a Panera meets burgers and Frosties.

Brolick confidently stated that its 45 year run on serving fresh food means "we're clearly giving people a superior experience" compared to its traditional competitors. He didn't identify them by name, but he was obviously referring to chains such as McDonald's and Burger King, which have a reputation for not exactly having the freshest of ingredients.

Holy Chipotle!
For Chipotle Mexican Grill specifically, Brolick argued that Wendy's gives people a comparable experience to that of Chipotle Mexican Grill but does so for between 40% and 45% less than the average check.

Sofritas

Source: Chipotle Mexican Grill

The average check at Chipotle Mexican Grill is around $9. This puts Wendy's at between $4.95 and $5.40. For many budget-conscious people these days, any savings is welcomed. 

No square burritos
If Brolick and Wendy's can successfully sell people on the idea that people get the same fast-casual experience at Wendy's that they get at Chipotle only at a huge discount, sales will benefit to the upside.   For 2012, the average Wendy's restaurant in the U.S. did slightly less than $1.5 million in sales. Chipotle Mexican Grill did better, at $2.1 million.

If you do the math, this also means that the average Wendy's had around 300,000 customer visits compared to just 233,000  visits to Chipotle Mexican Grill. This suggests Wendy's, believe it or not, is still more popular on a per-store basis.

Growing hot as a Mexican pepper
One thing Chipotle Mexican Grill has over Wendy's, as I'm sure you've heard, is the  continuous  same-store sales and average unit growth. From 2010 to 2012, the average Chipotle unit sales grew  16.7%, while at Wendy's it only grew by 4.6%. That trend may start to reverse.

Podq

Source: Wendy's

Evidence suggests new Chipotle Mexican Grill locations start out with relatively soft sales compared to the rest of the chain, while for Wendy's it's the opposite. Brolick said new stores built from the ground up are seeing sales that are up to 35% higher than those of existing stores.

Part of the reason for this is the new fast-casual look and feel of the reimage  initiatives.  Wendy's has been remodeling its restaurants with a whole new look that appears more similar to the Chipotel-Panera style.  There is something to be said for atmosphere; it's working for Chipotle, but it's starting to work for Wendy's too.

Store remodels see sales jump between 10% and 20% post remodel. For stores that are scrapped and rebuilt, it's even better at between a 25% and 35% jump in sales. Both see an average leap of 40% in profit flow-through afterward.

Going for the whole enchilada
Wendy's is targeting between 410 and 460 "image-activated restaurants" including 60 rebuilds this year. Using the midpoints of 435 restaurants, a 15% jump in sales post-remodel and a 30% jump in sales for rebuilds,  for this year alone that should add 1.1% in sales to the system unit average.

Granted, 1.1% isn't a huge amount, but it's a start as Wendy's eyes Chipotle Mexican Grill's sales-per-unit level of $2.1 million. During a presentation back in January, Brolick stated:

I will tell you that in October, at our franchise convention, we went public with our franchisees and committed to achieving system average volumes of $2 million; and we showed them a clear path on how we can get there, $2 million system average volumes.

Foolish takeaway
It will be interesting to see if Wendy's can achieve its goals. Simply put, the fast food chain needs to increase  per-unit sales by 33% in order to succeed. The company may have some surprise plans to unveil from its test-marketing labs.  Watch the plans and results carefully and you might be able to catch a relatively early ride on Wendy's for years of growth ahead. 

Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers