Business

Wendy's breakfast is grabbing new prospects because the pandemic pushes customers to interrupt their habits

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The breakfast bacon and spiced potatoes are part of the breakfast menu at Wendy's restaurant on March 2, 2020 in New York City.

David Dee Delgado | Getty Images

Wendy's is the rare restaurant company that continues to lure customers to its restaurants for breakfast even during the coronavirus pandemic.

For the past eight months, consumers broke their old breakfast habits and started eating early morning at home, triggered by office closures and virtual schooling. The change in behavior has resulted in higher sales for grain manufacturers General Mills and Kellogg, which, prior to the crisis, struggled to revive consumer appetites for Cheerios and Frosted Flakes.

For fast food restaurants, on the other hand, the abrupt transition has hurt breakfast sales, although their broader business is quickly recovering. Coffee chain Starbucks, which relies on their loyal customers' morning commutes, posted a 9% drop in sales in the same store last quarter. Executives said customers prepared their coffee runs later in the morning or early afternoon.

Some Yum Brands & # 39; Taco Bell franchisees decided to open restaurants later, which cut labor costs but temporarily brushed breakfast off their menus. The early morning meal accounted for 4% of sales in the third quarter, compared to the usual 6% contribution, even though more than half of operators continue to serve breakfast.

But Wendy & # 39; s, which was offering breakfast nationwide a few weeks before the lockdowns went into effect, is bucking this trend. Breakfast accounted for 7% of the company's weekly sales – a slight decrease from 8% last quarter – and contributed 6.6% to sales growth of 6.6% in the same store in the US for the third quarter. Executives said breakfast sales increased in the third quarter compared to the last three months.

Less competition from Taco Bell and higher marketing spend to raise awareness could help Wendy's breakfast sales. Last quarter, Wendy & # 39; s spent $ 6.2 million advertising its breakfast offerings, up from $ 2.2 million in the previous quarter.

CEO Todd Penegor told analysts Wednesday that the chain's number of repeat customers was "very high," suggesting that Wendy & # 39; s Frosty-ccino and Breakfast Baconator are persuading consumers to develop new breakfast habits.

"We are confident that we can continue to expand this business in the future as more and more people fall back into their everyday lives," he said.

According to the NPD group, breakfast traffic is improving across the industry. Visits only decreased 12% in September, compared to a low of 35.8% in April. As consumers return to the thoroughfare for breakfast rolls and hot coffee, Wendy & # 39; s is in a unique position to attract new consumers to other habits.

Despite Wendy's breakfast success, the company's shares fell about 4% in late morning trading after the company missed analysts' sales estimates. Wendy's shares are up more than 6% in the past 12 months. With a market value of nearly $ 5 billion, the stock hit a 52-week high of $ 24.91 on October 16.

On Wednesday, Wendy & # 39; s also announced plans to restructure some of its operations, which will cost between $ 7 million and $ 9 million in severance payments and office closures. The company also plans to only test drive-through locations. Both choices likely have their roots in pandemic-inspired habits. More and more diners are using drive-thru to take their food with them, and Penegor said Wendy's need less office space as workers effectively worked from home during the Covid-19 crisis.

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Steven Gregory