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Wendy's reports weaker than expected sales Wendy's sales hit by cheaper US grocery prices
(about 1 hour later)
Burger chain Wendy's has reported lower than expected sales as more diners decided to cook at home. Burger chain Wendy's has reported lower-than-expected sales as more consumers decided to eat at home.
Sales at stores open at least 15 months rose by 0.4%. Analysts had expected 1.9% growth. Sales at stores open for at least 15 months rose by 0.4%. Analysts had expected 1.9% growth.
Wendy's struggles are indicative of broader problems in the fast food industry, which is fighting an image of being unhealthy as well as rising wages in some US cities. Lower food prices helped Wendy's cut costs, but cheaper groceries were also encouraging more people to cook.
McDonald's, Dunkin' Brands Group and Starbucks have all posted lower sales. Profits for the second quarter fell $13.7m to $26.5m (£20.3m) compared with the same period last year.
Wendy's profit for the second quarter was $26.5m (£20.3m) down from $40.2m last year.
Total sales at Wendy's restaurants fell 22% to $382.7m.Total sales at Wendy's restaurants fell 22% to $382.7m.
Lower food prices helped Wendy's and other restaurants offset costs, but cheaper prices at the grocery store also encouraged more people to cook at home. 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."
Wendy's chief executive Todd Penegor said he remained confident. The slide in sales at Wendy's reflects broader problems in the fast food industry, which is increasingly regarded by consumers as unhealthy.
"In the face of challenging industry conditions, we remain confident that Wendy's can win in the [fast food restaurant] space". McDonald's, Dunkin' Donuts and Starbucks have all posted lower sales in recent quarters.
New competitors in the fast food market and a growing desire for healthy, more high-end options have caused problems for many in the industry. 'Fast casual' competition
Experimenting New competitors in the fast food market and consumers' growing desire for healthier options have also caused problems for many in the industry.
Newer brands like burger chain Shake Shack and bakery chain Panera are offering what many customers see as more premium options. 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 reports earning after markets close on Wednesday.Shake Shack reports earning after markets close on Wednesday.
Fast food restaurants are also feeling pressure from increases in the minimum wage which has been introduced in several US cities. 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 to attract customers. A growing number of chains are trying out new menu items and discounts in a bid to attract customers.
Wendy's has been pushing its four items for $4 menu option, while McDonalds has brought in all-day breakfast and is apparently mulling over introducing more fresh ingredients. Burger King has introduced a new Hot Dog and Whopperito- a twist on their signature Whopper burger that is wrapped like a burrito. 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.
Shares of Wendy's were down nearly 8% in early trading on Wednesday. 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 of Wendy's were down almost 2% in afternoon trading on Wednesday.