I don’t know anything specifically about Wendy’s, but in my real estate career, I did a lot with Zaxby’s based in Athens, Georgia. I built several as an owners rep, and I’ve consulted with them when their profits flattened out about store 600.
After the lot is graded and the utilities are in at the curb, they hope to have the store running in 131 days, or at least that’s what it was a few years ago with the last one I did. They can’t pay more than about 700,000 for the lot, and construction is about $550,000 with the equipment. Any more than that, and you just can’t sell enough chicken to cover it And they don’t make a nickel until the first sandwich is sold. They loved me because I built one in 97 days.
I learned a lot from sitting in the meetings. Not all fast food is alike. Zaxby’s is in the category of fast food like McDonald’s, but it’s more premium. The average sale per person is about three dollars more than McDonald’s. Wendy’s is also a semi premium compared to McDonald’s.
Even though there are differences, the center of the fast food market is over built and over competitive by a factor of about 3.2. That means there’s 2.2 more restaurants than is needed to feed the community, that is needed to succeed.
If you look at a hotel, a new one in town stays fully booked. They build a second one and it stays fully booked, etc. Then they build one and it doesn’t do well. But it’s not only the last hotel that suffers, it’s all of the hotels because it drives prices down, which drives profits down. Fast food is the same, but with a twist, because some types of meals are more in demand than others.
One other tidbit I picked up is that they plan on a 20 year run. So the sales have to make a profit over 20 years after all expenses. That does not include the land, which is almost always worth more at the end, but any difference in the land sale does not tend to be a significant number in the accounting.
The only other thing I’ll throw in is that the vast majority of stores are franchisees, and not owned by the brand. It’s usually a mix. When I built my first Zaxby’s, I built one for one customer, and then a second for him. That store was number 500+ or minus. Now they are in the 900s. They will no longer sell an individual franchise. If you don’t want to build 10 within three years, they’re not interested. If a brand builds 100 stores with individual owners, they have to manage 100 people. If they have 100 stores, and each franchisee has 10 stores, they have 10 entities to manage. It’s a different skill set and management style to manage more stores. Zaxby’s made that transition And returned to Expanding profits.
And although I was out of it by the time of Covid, Covid had a tremendous effect on all of that and all of commercial real estate. The whole Covid play had the undesired effect of letting everybody know that they didn’t need to go into the office, nor did they have to eat out. Almost nothing was delivered five years ago, and now it’s typically 30% or more of any food business. That means they need a whole lot less seats. And with the competition, they have to have a fresh appearance, so they rebuild.
My two cents, just FYI.
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