Tuesday, May 8, 2012

Wendy's sandwich flub

One of the first products launched by Wendy’s after CEO Emil Brolick took the helm was the W cheeseburger, a new sort of draw for the big burger brands. As Brolick explained right before the December launch, the W packed 4.5 ounces of beef at a price of just $2.99—significantly below the $3.50 price of the chain’s Dave’s Hot ‘N Juicy, but with better margins than the sandwiches on Wendy’s 99-cent menu. The chain was betting that a mid-tier burger would convince bargain-hunters accustomed to paying a dollar to trade up for a different sort of steal.

But the gambit backfired, Wendy’s execs acknowledged today. “While the goal of the W was to drive trade up from the 99-cent price value products, it turned out that we saw the opposite effect, causing trade down from our premium hamburgers,” CFO Stephen Hare told investors.

The chain tried to temper the impact by raising the price of the W to $3.19 in March, Hare explained, “it did not achieve the desired results.”

Financial analysts figuratively scratched their heads when they heard the news. As Hare observed, the W contained 4.5 ounces of beef, compared with a 4-ounce patty for the Dave’s. Twelve percent more meat at a 15% lower price. Hmmm. Why, exactly, did they think the Dave’s drawing power would hold?

Asked Mitchell Speiser from Buckingham Research Group, “Just the fact that it has more beef than the more premium sandwiches, can you just give us a sense of what the strategy was behind pricing it lower even though it has more beef in the sandwich?”

“We recognized that this was not the right thought process and this was the thought process that was in place,” responded Brolick.
Indeed, he continued, the impact of the trade-down was amplified if you looked at the average checks. W buyers bought fries and a soda less often that the purchasers of a Dave’s.

Hare noted that the W would no longer be promoted. No one sounded very surprised.

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