In a May 8 call with financial analysts to discuss first-quarter earnings, the company revealed that it has lost market share for value customers, despite early success from its new Right Price, Right Size menu. As marketing of the menu yielded to fish promotion and other messages, value sales softened.
“As the consumer environment evolves, we are refining our promotional calendar to optimize sales, check and transaction growth with modestly more emphasis on price value to go along with our premium promotions,” said Emil Brolick, president and chief executive officer.
Brolick described an “interesting dynamic that we are seeing is that as you look at the consumer environment out there, that we are probably seeing an increasing bifurcation of consumers where you still have consumers that have the capacity to spend on higher-end items.”
In competing with the quickly growing fast-casual segment, Wendy’s has launched more premium products – and such efforts are paying off. The April introduction of Flatbread Grilled Chicken sandwiches led to the company’s highest level of large chicken sandwich unit sales in nine years.
Meanwhile, value shoppers, who represent 20% of overall business in the industry, according to the company, may have forgotten about Wendy’s 99-cent offerings.
“It is almost like for some of the price value shoppers, it is ‘out of sight, out of mind,’” Brolick said.
Such customers, he added, must be reminded on an ongoing basis about a value offer.
“It is apparent to us that, to this core group of 99c price shoppers, they are heavy users often of quick-serve restaurants, and you need to continually remind them that you have products available for them every day just because their economic situation necessitates that price point,” Brolick said.
New marketing plans include more emphasis on the 99c price point of the Right Price, Right Size menu, which also includes $1.19 and $1.99 items, while continuing to execute what Brolick called “the power of ‘the and.’”
“It is not stepping away by any means from the high end because you will see that we have some outstanding product coming into the pipeline,” he said. “But we feel we also have ongoing pressure against the price value end.”
In addition to tweaking its advertising strategy, Wendy’s recently has sought cost management opportunities, which include an agreement with suppliers to reduce beverage costs and a decision to boot breakfast from restaurants with unprofitable morning day-parts.
“While this decision will negatively impact our 2013 same-store sales result, as was anticipated, it will aid our earnings performance as we benefit from reduction in breakfast advertising expense, as well as the elimination of unprofitable morning daypart operations in these restaurants,” Brolick said.
He added that positive results from the restaurant reimage initiative are offsetting lost sales from discontinued breakfast.
“We know we can’t outspend the competition, so we must outthink and out-execute them,” Brolick said. “Instead of trying to beat them at the same game, we must play an entirely different game.”