Wendy’s and Domino’s Pizza have made aggressive plays to strengthen their positioning with budget-conscious consumers and offer them more value in 2013 — but not so aggressive as to hurt profits, says a restaurant industry expert.
Dublin, Ohio-based Wendy’s revamped its former value menu with Right Price Right Size, which groups 18 items sold between recommended prices of 99 cents and $1.99. And from Jan. 2-13, Ann Arbor, Mich.-based Domino’s is offering $5 in Domino’s Dollars off a later online order to customers who use the chain’s online- or mobile-ordering platforms to get its offer of two medium, two-topping pizzas for $5.99 each.
But while the Right Price Right Size Menu at Wendy’s and the Domino’s Dollars limited-time offer ostensibly allow consumers to pick lower price points, they are designed in such a way to help protect margins and profits while driving the gains in traffic that both chains are targeting, according to Darren Tristano, executive vice president of Chicago-based market research firm Technomic Inc.
Wendy’s leans to the ‘Right’
Wendy’s senior vice president of communications, Denny Lynch, noted in an email to Nation’s Restaurant News that the heavy user of the chain’s former My 99-cent Everyday Value Menu is still accommodated with seven items for a recommended 99-cent price point. That customer often has proved to be unwilling to trade up from 99 cents, as chief executive Emil Brolick had indicated in prior earnings calls and which necessitated a reformulation of the value menu.
But with the Right Price Right Size Menu, guests can supplement either 99-cent items or premium sandwiches with complements for $1.29 or $1.69. Lynch expressed confidence that Wendy’s could continue the pattern of increased traffic and average check its restaurants garnered during test-marketing of the new value menu.
“The broader approach we’re taking is to show customers we have up to 18 menu items at attractive prices,” Lynch wrote. “By bundling the Right Price Right Size menu, we’re showing our broad menu variety with Wendy’s quality.”
Last year, McDonald’s repackaged its mid-priced items to form the Extra Value Menu and stake out menu territory between the Dollar Menu and its combo meals. But the move did not generate expected sales, and McDonald’s since has pivoted back to its two-pronged marketing strategy of emphasizing the Dollar Menu and premium limited-time offers.
Technomic's Tristano speculated that Wendy’s new tiered-value menu might struggle to get traction like McDonald’s Extra Value Menu has, but noted, “that’s not what Wendy’s is looking at” with its new value menu. He suggested that the goal of layering in items that are more expensive than 99 cents is to protect franchisee and unit-level profitability at the more than 6,000 Wendy’s restaurants in North America.
Tristano noted that the gradual increase in prices for some items is necessary for Wendy’s, “because 99 cents makes it very hard to earn any kind of margin.” But it is a delicate balance to be struck, he said, citing the Double Stack sandwich, which Wendy’s used to sell for 99 cents but moved up to $1.29 and now sells closer to $1.79 at some locations.
“That’s 80 percent above what the price was a year ago, and I don’t know if you can get away with that,” Tristano said. “Consumers do the math and say, ‘Wait a minute,’ and go after the less expensive cheeseburger. But this is a play to address cost implications to these value items.”
Wendy’s spokesman Lynch reiterated that Right Price Right Size did not just repackage snack items but rather offered four cheeseburgers, three wraps and two side salads for less than $2. “You can create an entire meal,” he wrote. “In our test markets, customers tended to mix and match across our entire menu.”
The brand should be able to hold off competitors since they could not offer similar products at prices any lower than Wendy’s, Tristano said.
“It’s a mind-set, but over time we’ve gotten used to paying more for items we used to pay less for,” he said. “A restaurant has to function on profitability; if not, it closes. Their margins are slim enough already that raising prices by 30 cents on some meals is appropriate.”
New year, new tactics at Domino's
Domino’s Pizza spokesman Chris Brandon said Domino’s Dollars is an attempt to layer value on top of value to reward the customers who place online orders, which account for one third of Domino’s sales at its 5,000 domestic restaurants.
“We’re happy with that, but the biggest thing we want to offer now is value,” Brandon said. “The $5.99 deal is already strong, but then $5 on top of that is a ‘thank you’ to our customers for starting out 2013 with us.”
Domino’s requires users to redeem their emailed code within 10 days of the first pizza purchase, he said.
Brandon pointed out that the amount of money discounted is unprecedented for Domino’s, and so is the method of using emailed promotional codes for customers to redeem the deal. As such, keeping the offer limited to a short, 12-day window gives Domino’s the chance to test the tactic out without committing too much, he said.
Technomic’s Tristano said the $5 bounce-back discount ultimately attracts value seekers who might have opted for a competitor, even at the risk of diluting the revenue slightly from future purchases from regular guests.
“Domino’s is going after lapsed and new customers to get them into that habit,” Tristano said. “You order it once, have an incentive to order twice, and then hopefully Domino’s has the hook in there.”
Brandon said the Domino’s Dollars offer is not a definite precursor to some kind of online-frequency program like Papa Rewards at Papa John’s, but Domino’s is not closed to that idea down the road.
“We’re always looking at that,” Brandon said. “We’re exploring the best way to give online customers the best experience, and also ways we can continue to incentivize people to use online ordering more.”
Tristano speculated that the information-technology and marketing investments needed to launch an online-frequency program have held back Domino’s or Pizza Hut from following Papa John’s lead.
“If you’re a Papa John’s and can acquire and understand all that frequency data, there’s tremendous value in that kind of market research,” he said. “But getting a program like that rolling is a big initiative.”
Contact Mark Brandau at email@example.com.
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