How to Pass Along Inflationary Costs Without Losing Traffic?

Nov 16, 2022 | Corporate Insights, No Bull Economics

Banner
Banner

We took note of Wendy’s confidence in its ability to pass along further menu price increases (after already hiking prices by +10% during the last couple of quarters) during its 3Q reporting. This comment came despite management’s observation that consumers seem to be more strapped, particularly those earning under $75k (50%+ of Wendy’s demo) who are eating more meals at home. Notably, food-at-home meals currently represent 85% of the consumers’ basket (up from 82% pre-covid) and Wendy’s goal is to prompt those eating at home to return to their restaurants. In any case, as Wendy’s current menu price increase flow-through is running 80%, management concludes that the consumer has not yet reached a breaking point. Wendy’s confidence in its ability to further raise prices is based upon help from a consultant that is assisting the chain in finding ways to pass along granular menu price hikes (and/or lower discounts) on a strategic, selective basis. Wendy’s has learned that the best way to maximize profits is to keep from using standard pricing which may be too high for its low-income customers and not sufficiently high for its higher-income guests who can tolerate more.

Along these same lines, the largest restaurant franchisee (Carrols Restaurants which runs many Burger Kings) recently reported that its pricing is becoming much more geographically refined with the use of its pricing tiers which allows them to better adjust to local market conditions. Additionally, Carrols is focused on finding the optimal mix of promotions & discounts across channels to balance the needs of customers with its own profitability. Smarter pricing and discounting practices have contributed to profits in recent quarters with limited impact on traffic. Resultantly, the company is currently running several pilot programs to test more customized local value & marketing initiatives.

Wendy’s Stock Price Graph

Follow us on LinkedInTwitterFacebook, and YouTube!

Disclaimer of Liability
No Bull Economics
Restaurant Research

Email Sign-up

Jack in the Box Corporate Insights

Jack in the Box results reflected an improvement in: dining room openings (60% of system); innovation, upsell & add-ons sales; digital progress which is helping frequency; and late-night.

How to Circumvent Food Shortages?

The vulnerabilities of a long-distance supply chain have become very evident over the last couple of years, especially when it comes to farming.

This Week in Summary 11/18/2022

We want to spotlight Target this week which provides valuable insight on consumer spending.

How Would You Value the Federal Reserve?

Here is an idea: let’s take the Federal Reserve public in the world’s largest IPO.

Investors in Retail Stocks Think Consumers are Back

Recent retail stock gains would suggest that investors are confident in consumer strength, despite continuing inflationary issues.

Papa John’s & Chili’s Reveal the Plight of Cash Strapped Consumers

The relevant question remains whether consumers who are increasingly cash-strapped can be convinced to pay more for higher quality levels?

This Week in Summary 11/11/2022

Market melt up & the midterm elections

DoorDash’s Grip on Labor Costs is Funding New Investments

Doordash’s platform generated +10% of all restaurant industry sales.

3Q Results for Bloomin’, Texas Roadhouse & Cheesecake

Full serve restaurant sales performance is currently a function of customer demographics.

Are We in a K-Shaped Economic Recovery?

A K-shaped recovery refers to when different economic sectors recover at different rates after a recession.

Digital Marketing Opportunities
Restaurant Research

A Restaurant Research LLC Company