In The Minority: At $4.69, Wendy's New Pretzel Bacon Cheeseburger Has No Chance
July 17, 2013
(Off The Menu)
– When it comes to my fellow food and beverage analysts, it’s never comfortable being in the minority opinion on an issue. Nonetheless, I don’t share their excitement when it comes to Wendy’s new Pretzel Bacon Cheeseburger.
Many analysts are hot on the item, believing that it could thrust the burger chain back to the top spot when it comes to product innovation. One research analyst, Mark Kalinowski, of Janney Capital Markets, was so strong on the product that in a May 24 research note, he upgraded Wendy's stock to "buy" from “neutral.” In a more recent July 9 note, Zack’s Investment Research upgraded Wendy’s to “strong buy” based largely on the new product.
From an analyst perspective, I understand the excitement. Many of my peers are correctly pointing out that there’s currently no other fast-food item on the market similar to the Pretzel Bacon Cheeseburger. Additionally, the pretzel trend has seen its share of successes at casual-dining restaurants, so it makes sense to think that similar success could trickle down to fast food.
But as a consumer of fast food, I have my doubts for one simple reason:
The burger has a retail price of $4.69. So right away, you’re eliminating the value-menu audience, which makes up a significant number of customers. Sure, the burger sounds tasty and there’s definitely credence to the popularity of pretzel-based items. But $4.69 for a new burger doesn’t translate to success in my book. In the casual segment, sure, but not in fast food.
Compare Wendy’s new burger to two recent successful product launches from other fast-food chains. Taco Bell’s financial fortunes have basically done a 180 since its launch of the Doritos Locos Taco. It helped that the product was tied to a strong brand name like Doritos, but let’s face it: One of the main reasons the product was so successful was that the price ($1.29-$1.49) was right. You put the initial price at more than $2 and it has no chance.
Let’s also compare the pretzel burger to Carl’s Jr.’s Big Carl burger that was launched in 2009. The burger, with a current retail price that hovers around $4, was so popular that it was added to Carl’s permanent menu. But why was it so popular despite the fairly premium price? Because when Carl’s first brought the burger onto the market, it was offered at around $2. Additionally, they kept the burger at that initial price long after it was kept on the menu permanently. Over time, the price was raised. But by then, it had established itself with customers.
The blueprint for Wendy’s is simple: Lower the price of new products, make it available to a wider range of customers and give the product a better chance of success.
You can always raise the price later on.
Nevin Barich is the Food & Beverage Analyst for IndustryIntel. At $4.69, don’t expect him to purchase Wendy’s new Pretzel Bacon Cheeseburger anytime soon. He can be reached at firstname.lastname@example.org