by Cynthia Wilson | May 11, 2011 9:46 am
No matter where you go these days for a burger, be prepared to pay more for that pound of beef. Wendy’s/Arby’s Group (NYSE: WEN) is the latest fast food restaurant chain to announce it will raise prices on select menu items to cover the rising cost of beef and other food commodities. It’s the second time in as many months that Wendy’s said it will raise menu prices.
The last increase for Wendy’s, in late March, was on par with McDonalds Corp. (NYSE: MCD) with a 1% increase. Back then Wendy’s and McDonalds figured beef prices would increase anywhere from 10% to 15% this year. Now both chains are forecasting that beef costs will be up about 20%.
Wendy’s said the rising beef prices contributed to its stagnant revenues and first quarter earnings loss. Higher beef prices also are the reason WEN stock cut its full year forecast. Although its performance improved compared to the same period last year, the gains were at Arby’s which had a 5% increase in sales, while Wendy’s suffered a 1% decline.
But with gas and food prices steadily rising, consumers have worries of their own. Wendy’s knows customers will need a reason to walk through its doors or cruise through its drive-thru during the peak barbeque season, so it has improved some core menu items and plans to add new ones in some markets.
Most fast food chains have focused on chicken to boost sales, and Wendy’s is no exception. New Wendy’s menu offerings will include Flavor Dipped Chicken in select markets, the Berry Almond Chicken Salad, and the new Bruschetta Chicken sandwich. Beef lovers will be treated to the Bacon Mushroom Melt and Dave’s Hot ‘n Juicy Cheeseburgers better-burger line, while customers looking to quench their thirst this summer may consider Wendy’s new Fresh Berry Frosty and Wild Berry Tea.
Wendy’s said the new burgers and chicken sandwiches will be served on a butter-toasted bun. Who knows if that will distract customers away from the price tag, however.
If Wendy’s is right, the price increases on its single, double and triple burgers may be easier for customers to swallow. If not, Wendy’s may have to expedite and expand its plans to expand overseas — where margins are healthier.
As of this writing, Cynthia Wilson did not own a position in any of the stocks named here.
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