Signs That Have Us Worried About Wendy's Future

Wendy's reported 2024 sales of $3.7 billion which grew its systemwide sales by 5.4%, but everything may not be so positive for the fast food burger joint. Both emerging challenges and longstanding issues threaten to present bigger challenges leading some to show concern about the future of Wendy's.

Thanks in part to the planned closure of over 100 stores in the United States as well as disappointing breakfast sales, investors are becoming somewhat spooked by Wendy's stock performance and lower forecasted earnings for shareholders. Additionally, Wendy's recent rollout of artificial intelligence for some of its drive-thrus has been received poorly by customers despite significant investment from the company. 

But one issue hangs over and amplifies the damage of all its other challenges: customer complaints about food quality. Wendy's has faced food quality complaints for years. Unfortunately, whatever the chain has done to address these concerns isn't getting much traction with its customer base.

Although the number is a small percentage of Wendy's 6,000+ U.S. locations, the popular burger chain is set to close 140 of the least profitable locations nationwide by the end of 2025. The closures, according to an earnings call with Wendy's president and CEO Kirk Tanner are focused on "outdated" and "underperforming" restaurants — a similar tale to the sad downfall of the world's first Wendy's nearly 20 years ago.

Despite the fact the company is planning on closing over 100 stores this year, this doesn't necessarily represent a business retreat for Wendy's. The company expects to open roughly as many new stores as it's closing. The total number of U.S. locations should remain roughly the same, even if not every individual shut-down Wendy's is directly replaced with a new one. Which individual locations are closing is unknown at this time. Regardless, this is likely more accurately viewed as a reorientation of the brand's store distribution toward high traffic locales in light of economic hardship rather than a resounding death knell.

Although Wendy's isn't planning to reduce its total number of U.S. locations, that isn't reassuring news for investors at Morgan Stanley. Morgan Stanley recently cited the restaurant's flat unit growth as one of multiple reasons to cut its target stock price for Wendy's from $22 a share to merely $14 — while downgraded its rating of the Wendy's stock to "underweight."

Morgan Stanley analysts noted that Wendy's flat unit growth is a particular problem in international markets, where the brand's best efforts seem to be falling flat. On a similar note, analysts are also calling the new breakfast menu a commercial flop — despite the major effort from Wendy's to produce one of the best biscuits in the fast food breakfast game.

Another contributing factor to this darkening economic outlook is that Wendy's has let Wall Street down before. The restaurant chain has missed analysts' revenue projections five times in the past two years.

Regardless of whether you celebrate or condemn artificial intelligence, it's already changing the fast food industry. Wendy's announced in 2023 that it was launching a pilot program for AI-enhanced drive-thrus at 100 restaurants. By the end of 2025, Wendy's will expand its FreshAI drive-thrus to 400 more stores.

Although Wendy's AI drive-thrus will soon be in 500 locations nationwide, the existing FreshAI restaurants are already generating customer complaints online. One Reddit user said of their family ordering experience that Wendy's FreshAI "could barely understand what we were ordering, didn't give me my combo, and we were scared to say anything to each other in fear of [the AI] ordering it... Disastrous if you have a family that has to discuss what they want."

On another Reddit thread, a Wendy's customer claimed they tried to order a two for $7 deal, but when Wendy's FreshAI got his order wrong and no human came to address it, they drove off without making a purchase. Another customer in the thread reported similar difficulties, calling FreshAI "creepy" and unable to understand customizations. 

"Quality is our recipe" might be a famous Wendy's motto, but many recent customers have gone online to vent their dissatisfaction with the quality of the food. One Reddit user wrote they've been "absolutely floored by the meager portions and cold food" lately. "No fast food restaurant has had a steeper 10 year decline," a second user concurred.

A self-described Wendy's employee replied that things "have gotten insane" in the past two years. "We are so short staffed constantly [and] we don't have the time or staffing to properly portion drops," meaning long wait times, disorganized kitchens, and greater potential for error.

In a separate Reddit thread, a customer complained there's "hardly any beef in the 'chili.' It's nearly all beans now." Wendy's chili is actually made from leftover hamburgers, so it's possible this store sold more burgers than it expected. But it goes beyond the chili, said the user. "This company has gone way, way downhill... Now the burgers are small and usually cold when you get them and just about everything there is terrible." None of this is good news for the burger joint as it tries to draw customers back in.