Wendy's looks to $25 million digital transformation as it enters its second half century

It’s a big year for Quick Service Restaurant (QSR) Wendy’s. Not only does 2019 mark the half century for the fast food chain, it’s the year in which the firm intends to pump $25 million into its digital spend.

It could well be argued that such investment is (a) overdue and (b) essential to play catch-up in the QSR space. Over the past few years, McDonald’s has seen its digital transformation efforts pay off, in the process creating some clear space between it and its rivals. That’s piled pressure onto other providers, as Wendy’s CEO Todd Penegor concedes:

Everybody is going to be having technology but who does it the best and creates the best customer experience. That's the opportunity for us and where our biggest opportunity is, is to drive more frequency into our restaurants to really win that that share of stomach battle in a category that's flat to slightly up.

So to that end, cue the $25 million budget for digital transformation, broken down into $15 million for an Accenture ‘partnership’ and $10 million for the roll out of digital scanners across the chain’s US operations, explains Penegor:

We plan to invest an incremental $25 million to build a stronger foundation across our digital platforms with a heightened sense of urgency moving forward. As part of this investment, we will stand up our digital experience organization in 2019, which will be led by [Chief Digital Officer} Laura Titus, who has recently joined our Senior Leadership Team….As part of this new organization, we have also engaged Accenture to leverage their best-in-class expertise and we will be partnering with them to drive acceleration in this space. The structure we have created will allow us to flex capacity and capabilities as needed.

We are also making technology equipment investments in digital scanners on behalf of the North American system that will provide many benefits such as increased throughput in our restaurants as well as better access to consumer insights to support our digital initiatives.the scanner is up and running right. There is a lot of benefits for the scanners really helps our crew out along the way to make things a little simpler with accepting coupons with paper and digital. It really will help us over time on the digital payment acceptance front, and it really helps us accumulate a lot of great information on our consumer to make sure we can create even a better experience for them, so it could drive throughput over time.

On the face of it, it’s a more positive piece of tech-centric news from the firm than that of a couple of weeks past when Wendy’s agreed a settlement for a class-action lawsuit brought by various financial institutions after cyber-attacks that targeted Point-of-Sale systems of Wendy's franchisees in 2015 and 2016. This is going to be a tech refresh aligned to a wider strategic goal, says Penegor:

We do think that technology can drive frequency as we better connect to that consumer and create a better more consistent service experience with them day in and day out and a lot of that comes back to speed. If you can figure out a way to get those orders into the kitchen faster and get folks through faster, they’re going to have a great experience and they're going to want to continue to come back.

This ties back into the firm’s underlying mantra:

Our ’one more visit, one more dollar’ approach will be our focal point and you've already seen this start to come to life. This strategy creates a platform to capitalize on our mix opportunity which will drive an acceleration of same-restaurant sales. Making our restaurants easier to operate is a major focus and will go a long way in supporting these goals.

We have made meaningful progress over the last couple of years with our consumer-facing digital capabilities. We launched Unified Wendy's app, initiated the rollout of mobile ordering, began using mobile offers, and have rolled out delivery to 60% of the North America system.

2019 goals

With that foundation in place, there are now some clear objectives for this calendar year, including making mobile ordering available across the whole of the US and expanding the digitally-enabled delivery option to around 80% of the chain. Penegor expands:

We believe that being successful in digital will be a competitive advantage for us as consumers are craving customization, speed, and convenience all of which can be enhanced through our platforms….We will continue our app acquisition strategy to drive more app downloads and increase our number of monthly active users through our mobile offers. We have also enhanced the customer experience in the app by making it more user-friendly and easier to navigate and consumers have been giving us positive feedback on these changes.

There’s also a need to raise consumer awareness of the new digital channels, he adds:

We have begun rolling mobile ordering out in our US restaurants and we expect to have it activated across the US system by the end of 2019 It is critical to have scale in order to create awareness and we plan to start doing that this year. Having the system live with mobile ordering will allow us to begin to build a one-to-one relationship with our customers, which is the ultimate goal.

It’s the same basic story with delivery, where Wendy’s has chosen to partner with two third party fulfilment firms, DoorDash and SkipTheDishes:

We will continue to drive more awareness through our advertising efforts and our partners are doing the same as many consumers still don't know that we offer delivery. Getting this to scale will allow us to fully understand what the potential of delivery could be in the long run. We create awareness…we’re seeing nice repeat and we've got a great partnership with our delivery partners to create awareness in some of the things they're funding to create awareness and create compelling economic model for delivery.

We're creating some awareness with some of the advertising support that we have and some of those providers are even advertising their own brands now. Our opportunity is really, how do we drive more awareness, so more folks know they can get delivery from Wendy's and as we build out from 60% of our system being able to support delivery at the end of 2018 to 80% during 2019, we can continue to advertise whether it's nationally or locally and create that awareness. And our partners will do the same.

So far, so good, but in there are other digital programs that aren’t proceeding quite so fast, most notably in-store self-service kiosks. By the firm’s own admission, there’s work to be done here to prove the business case, although early evidence indicates that check sizes are higher and it speeds up order throughput. But that needs to be proven now to the Wendy’s franchisees. Penegor says:

We’re leading the system to really prove the benefits and a lot of it comes down to labor positioning. How do we educate the consumer? It may not be right for all trade areas and that's part of the learning that we have but we do feel it's a complement to the whole digital strategy. There's a role in place for kiosk as well as mobile ordering and all the other things that we're doing.

My take

Overall, this is all about taking the core Wendy’s culture into a digital realm without losing sight of the values from 50 years ago. Penegor articulates this as:

Our goal continues to deliver on the same mission, Dave Thomas had when he opened his first Wendy's restaurant in 1969 to craft a delicious quality fresh never frozen hamburger and serve it fast in a clean and comfortable environment. In order to bring the Wendy's way to life, just like Dave did when he opened his first restaurant, we must remain focused on investing in the quality of our food, providing great value, delivering exceptional service, and elevating our restaurants. We will bring this to life through our focus in 2019 to enhance the customer experience through digital and driving operational excellence to ensure customers have a great experience at all of our restaurants.

He adds:

We really want to accelerate our consumer facing digital initiatives, and we do think that's where the customer is going. The great news is it complements our operating model in our restaurants. We can take more orders into the kitchen with full customization we’ll make to order and all of these [digital] tools will complement that. At the end of the day what we really want to do is create a better connection to our consumer and gather the data and have a one-to-one connection with everything that we're doing.

It's a sound enough thesis, albeit one that is undeniably playing catch-up to McDonald's.