Wendy’s franchisee EBITDA margin declined 270 basis points last year. | Photo: Shutterstock.
It’s been a tough stretch for the fast-food chain Wendy’s. The company’s same-store sales turned negative last year and that turn worsened in the last three months of 2025, down 11.3%, largely continuing in the first quarter when the key metric was down 7.8%.
Lower sales tend to yield weaker profits. And that’s exactly what’s happened. Profit margins at Wendy’s U.S. company locations declined 340 basis points, to 11.4% of sales. It’s worse considering that many of those locations have implemented operations changes that have yielded higher sales and profits.
In 2025, Wendy’s franchisees’ net sales declined 6%. EBITDA margins, or earnings before interest, taxes, depreciation and amortization, declined 270 basis points to 9.3% of sales.
Suzanne Thuerk, chief accounting officer, said there was a wide range of profitability results in the system, which can explain why some Wendy’s franchisees are opting out of breakfast.
But store profitability problems are hardly unique to Wendy’s. At Burger King, average franchisee cashflow declined about 10% last year, to $185,000 per store from $205,000. Beef costs, which rose 20% last year at the chain, were largely to blame for the decline.
In the first quarter, McDonald’s company-operated restaurant margins declined 25%, which is prompting the chain to reassess its ownership level.
“Our U.S. company-operated margins in the quarter were not acceptable,” CFO Ian Borden told analysts last week. “We’re actively addressing opportunities to improve performance and revisiting the optimal franchisee versus company ownership balance to maximize system value.”
Company executives on the call noted that corporate stores were not performing as well as franchisee stores. “It’s either on us to fix that, or we’re going to find franchisees who could run the restaurant better,” CEO Chris Kempczinski said. “The restaurant-level margins that [franchisees are] earning on their own restaurants, clearly there’s a lot of upside.”
Still, Kempczinski did add that there is pressure on franchisee profits. Cashflow among McDonald’s franchisee locations was stable last year. But “there’s certainly concern around franchisee profitability” early this year, not just in the U.S. but in many of the company’s bigger international markets.
“Beef inflation is just one example,” Kempczinski said. It’s “particularly pronounced in Europe, but also a factor in the U.S. For a portfolio like ours, that absolutely puts pressure on this.”
It’s easy to see how store-level profits would be problematic. Much of the marketing in the fast-food world is about price. Restaurants are pushing value extensively. A lot of restaurant visits right now are on some kind of discount, even when customers order delivery.
But that value push runs counter to the soaring cost of operating a restaurant. Beef costs hit a record earlier this year and are expected to remain high for the foreseeable future. But other costs are going up, too, including labor costs, insurance, utilities and other fees.
Franchisees pay for technology fees and they must deal with the rising use of third-party delivery and its 15%-plus service charge.
And remember, both McDonald’s and Burger King are seeing weakening profits with rising sales. Wendy’s is dealing with these same pressures while it is bleeding sales.
Rising sales do tend to cure all ills. But it takes a lot more sales to cure the ills created by this operating environment.
