Business

Wendy's sales hit by cheaper US grocery prices

Wendy's employee Image copyright Getty Images

Burger chain Wendy's has reported lower-than-expected sales as more consumers decided to eat at home.

Sales at stores open for at least 15 months rose by 0.4%. Analysts had expected 1.9% growth.

Lower food prices helped Wendy's cut costs, but cheaper groceries were also encouraging more people to cook.

Profits for the second quarter fell $13.7m to $26.5m (£20.3m) compared with the same period last year.

Total sales at Wendy's restaurants fell 22% to $382.7m.

Todd Penegor, the chain's chief executive, said: "The most notable driver behind the sales slowdown appears to be the continued gap between cost of eating at home and cost of dining out, which is now at its widest point since the recession."

The slide in sales at Wendy's reflects broader problems in the fast food industry, which is increasingly regarded by consumers as unhealthy.

McDonald's, Dunkin' Donuts and Starbucks have all posted lower sales in recent quarters.

'Fast casual' competition

New competitors in the fast food market and consumers' growing desire for healthier options have also caused problems for many in the industry.

When people do eat out they are increasing turning to "fast casual" chains that offer a more upmarket experience.

Stephen Dutton, consumer foodservice analyst at Euromonitor, said: "Consumers have a little more disposable income and they are willing to trade up for more premium option, which has driven a demand for new players like Shake Shack and Chipotle."

Newer operators such as Shake Shack and bakery chain Panera are offering what many customers regard as a better choice, despite their higher prices.

Shake Shack reported a lower than expected 4.5% rise in like-for-like quarterly sales on Wednesday, although total revenue rose 37% to $66.5m. Profits rose $2.2m to $3.3m.

Shares sank 9% in after-hours trading to $40.87, bringing the decline over the past 12 months to almost 43%. Shake Shack listed in January 2015 at $21 a share and briefly topped $100 in May last year.

Fast food restaurants are also feeling pressure from increases in the minimum wage which have been introduced in several US cities.

A growing number of chains are trying out new menu items and discounts in a bid to attract customers.

Image copyright Getty Images
Image caption Shake Shack offers antibiotic-free hamburgers

Wendy's has been pushing its "four items for $4" menu option, while McDonald's has brought in all-day breakfast and may introduce more fresh ingredients.

Burger King now sells hot dogs in the US and next week introduces the Whopperito - a twist on the Whopper burger that is wrapped like a burrito.

According to Mr Dutton, new offerings can generate a buzz and build brand recognition. However, he warns some consumers are seeking for a better overall experience at the restaurants, which can be costly to introduce.

"There are two ways of dealing with new players," Mr Dutton said. "McDonald's is trying to compete directly against them by making improvements to stores, but they run the risk of alienating a consumer base that is just interested in low prices.

"But there are chains that are doubling down on the value products by offering limited time promotions and creating mash-ups of different foods."

Shares in Wendy's ended 2.7% lower at $9.91 on Wednesday.

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