Wendy’s New Coffee Offerings: Wading Into a Red Ocean Sea of Beverages

Move Into Coffee And Related Drinks
Wendy’s is currently test marketing specialized coffee drinks with a major new coffee program in Mississippi and iced-coffee in Phoenix, Pittsburgh and Kansas City, MO.  It has introduced a drink called “Frosty-Cino” in Mississippi which is a less thick, coffee-flavored version of a Frosty.  Unlike a Frosty, it can be drunk through a straw, and is offered in four different flavors.  It sells for $3.69 per 20-ounce serving.  This move into the coffee arena seems to be a reaction to a trend among fast-food chains placing more emphasis on beverages in light of Starbuck’s overall success.  McDonald’s is at the front end of this trend as it plans to add lattes, cappuccinos and other upscale coffee drinks to all U.S. locations by year-end.

Red Ocean Coffee Space
This fast-serve coffee space is now a Red Ocean, and has too many large and small players trying to entrench their positions.  This space’s market growth has slowed, and can not support the influx of companies offering additional supply.  Most players seem to be offering imitations of Starbuck’s beverages, and are trying to compete in the premium end of the space.  Wendy’s offerings are “me-too” line extension-like products.  If they really want to impact revenue via coffee beverages, they should try to occupy a corner or niche within this market.  I would suggest a donut shop emphasis on good, affordable basic coffee done well.

Seek To Own A Beverage Space
If Wendy’s heart is set on beverage revenue growth, that’s not a bad strategy because drinks typically have high margins.  It’s not a bad place “play.”  Wherever Wendy’s ultimately decides to place its bets, it should seek to own a beverage niche or space.  This will generate better brand equity, and offer a higher quality perception for its food items.  Thus, it will further develop synergic increases in revenue for all its other products.  It will also enable Wendy’s to charge higher relative rents for its beverages.  Critically, Wendy’s would be viewed by customers as a leader in the fast food industry.  This would clearly differentiate them in the crowded and competitive fast food industry, and allow them their own space in the market.

Wendy’s Red Ocean Sea Coffee Drinks Coffee Beverage Space Starbuck’s Turbo Tagger