Wendy’s pulled the promotion plug on its W cheeseburger, admitting that the $2.99 introductory price was too low and that, as critics suggested at the time, the sandwich cannibalized sales of the higher-price Dave’s Hot ‘n Juicy Cheeseburgers, added just weeks earlier. Even though the W’s price was pushed up to $3.19, the problem continued.
The unusual confession came as Wendy’s reported results for the quarter ended April 1, 2012, that were significantly below expectations and that CEO Emil Brolick called “personally disappointing.” Same-store sales for North America company restaurants were up just 0.8%, with franchised stores up 0.7%. Margins for company stores fell to 11.8% from 13.4%, reflecting higher commodity costs as well as “unfavorable product mix.”
In response to a “What were you thinking?” question, Brolick explained that the W had been priced low with the idea of creating a mid-price tier that discount-minded “My 99¢ Value Menu” buyers could trade up to. Instead, Dave’s buyers traded down to the W. Wendy’s discovered that “Those 99¢ shoppers are 99¢ shoppers and it’s not likely we can move them up,” Brolick said.
Worse, the W proved to have “low drag along” power, meaning many diners bought only the cheap burger and not higher-profit fries and beverages as well. Average check for W buyers were $1.19 lower than that or Dave’s Hot ‘n Juicy buyers. No doubt Wendy’s wishes it hadn’t introduced the W with a TV spot claiming it had “a price that might make you giggle.” No one’s giggling now.
But Brolick still wants to close the price gap between the My 99¢ Value Menu and premium-price burgers and chicken, a gap he said is too wide. But instead of trying again to build a mid-tier, Wendy’s will spend Q2 and Q3 this year looking at changes in the 99¢ menu. Without giving many details, Brolick explained that the idea is to reposition the 99¢ menu from being strictly low-price to being a high-value option.
“We are not moving away from having a 99¢ menu,” Brolick said, but Wendy’s may narrow the number of items offered. The chain needs to retain price-value consumers but also needs to improve margins, he said.
Brolick said the new strategy of concurrently airing two advertising themes is working well. The “Now that’s better” commercials with actress Morgan Smith Goodwin—whom he described as the chain’s “redheaded consumer advocate”—also will be used outside the U.S., since social-media feedback signals the campaign’s success, he said. The “Wendy’s way” commercials with Wendy Thomas will appear throughout the year to reinforce core brand values.
Despite the W fiasco, Wendy’s intends to add new burgers later this year. A Bacon Portabella Burger was one that was briefly hinted at during the call. Wendy’s also continues to test Grilled Chicken Flatbread Sandwiches in selected markets in Massachusetts, Florida and a few other states. A rollout is expected later this year.