How to Pass Along Inflationary Costs Without Losing Traffic?

Nov 16, 2022 | Corporate Insights, No Bull Economics

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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

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