Selling frugal fast-food buyers on dynamic pricing and digital menus gets more difficult once it’s framed as surge pricing and Uber multipliers. But consumers have already, unwittingly, bought into Wendy’s new system.
On its February earnings call, Wendy’s CEO Kirk Tanner announced that the fast-food chain would be spending roughly $20 million on digital menu boards that would let it change prices on the fly and—paired with a Google-powered AI voice platform—offer suggested upsells to customers. It basically announced plans to digitize and personalize “do you want fries with that,” and social media responded with its characteristically measured restraint.
It was enough to force Wendy’s to issue a statement on Tuesday denying that its plan signaled surge-pricing-style “intent to raise prices when demand is highest at our restaurants.” Instead, the company insisted that its digital boards and dynamic pricing would allow it to be more nimble with its menu and “offer discounts and value offers to our customers more easily, particularly in the slower times of day.”
What it didn’t do is change the reality that airlines, hotels and other businesses have been using various forms of surge pricing and dynamic pricing for years. As it’s crept into movie theaters, bowling alleys and restaurants, it’s taught customers to expect a premium for certain hours and products and a discount for others.
Ashwin Kamlani, co-founder and CEO of data-driven dynamic pricing platform Juicer, noted that anyone who has popped into a bar during happy hour or ordered off a late-night menu has experienced dynamic pricing. For two years, his company has helped restaurant chains like BurgerFi and Bartaco navigate third-party delivery platforms like DoorDash and UberEats, where customers during the pandemic learned an order can be 15% to 40% more expensive during peak delivery hours.
“The dynamism is already there: Consumers are already used to it,” Kamlani said. “It is a question of conditioning, but it should be positioned to the consumer as a benefit: Restaurants are going to charge you less when they’re less busy.”
Wendy’s sees dynamic pricing—as well as a new customer relations platform, mobile app and loyalty program—as a means of influencing consumer behavior and improving the overall experience. It can move people around the menu through suggestion rather than have everyone dive for Junior Bacon Cheeseburgers and Frostys. It can space out the breakfast, lunch and dinner rushes rather than try to accommodate a growing number of customers within a finite window.
It can turn its traffic jam into slow-but-moving congestion, but experts warn it needs to be completely transparent about the shifts and hazards ahead.
“Where you can make a change relatively seamlessly within bounds that don’t feel like price gouging, consumers are warming up to the idea,” said Steve Caine, a partner at management consultancy Bain and Company and an expert in retail and customer strategy and marketing. “When you start to step outside of that, you’ll feel it and you’ll destroy trust.”
A frosty reception
Both Wendy’s and its consumers realize the escalating cost of ordering from the drive-thru menu.
According to the Consumer Price Index, the 2.6% increase in food costs in January from the year before was the lowest of any month in nearly five years, but still higher than in pre-pandemic February 2020. Meanwhile, the 5.1% year-over-year rise in the cost of food away from home that month—including a 5.8% uptick in “limited service meals and snacks” at fast-food establishments—almost doubled the rate of food inflation amid rising food and labor costs.
Juicer’s Kamlani noted that his platform’s dynamic pricing algorithm has helped restaurant clients see 5% to 10% increases in revenue and up to 35% widening of their margins.
“If you can match your labor and your raw materials with your pricing, potentially, you could actually operate more efficiently and maybe even reduce costs at some point in the future,” said Marc Emmer, president of strategic management consulting firm Optimize. “But there’s hypersensitivity right now because food inflation has been so high.”
But a 2023 survey from software marketplace Capterra found that 52% of consumers consider dynamic pricing at restaurants price gouging, with 36% ordering less often from establishments that adopt the model.
Of the 81% of consumers who frequently check menu prices before dining out, 51% have dropped restaurants entirely because of price increases. For these reasons, Capterra suggests restaurants tell customers exactly how and why prices will change—to improve food, pay employees, cover rising costs—and set narrow ranges for those price fluctuations.
Kamlani noted that Juicer has done just that: Making minor changes to a few items at certain locations during specific hours. For one client with more than 1,000 locations, Juicer is operating a pilot program that encourages customers to save money by visiting locations slightly before or after rush-hour periods when they’re turning customers away.
“You have what we would call in the hotel industry ‘shoulder periods’ that are typically dead or very slow. And now you’re growing the volume in periods, he said. “In the rush hour period, you’re still at max capacity, but now you’re turning away less people and frustrating less people, but making a little bit more money because you’re able to optimize prices slightly during that peak period.”
Dynamic potential
Even cynical consumers can be swayed. Those surveyed by Capterra noted that they could be convinced to change their habits with a discount exceeding 10% of the peak-hours price.
That’s already happening to an extent at other restaurant chains. Noodles & Company incurred customer wrath by increasing prices 13% year-over-year in mid-2023; in response, it shook up its management, pursued its own digital menus, and used loyalty programs and data to pinpoint customers’ ideal menu items, locations, ordering times and deals.
“Grocers do this all the time: They try to do personalized offers where you walk into a store and you can scan a barcode, and they’ll give you offers that are technically personalized,” Caine said. “If you’re a member of the loyalty program, you get a different price on things, but the technology has gotten so good now that you can do it by day part and, in the case of a restaurant, you’ve got menu boards you can change instantly and most people won’t notice.”
Optimize’s Emmer said there’s potential to use dynamic pricing and digital menus for A/B testing, doing away with fixed menu items and promotions and judging each photo, price and time of day on its own merit. Kamlani pointed to the airline and hotel industry’s alerts and last-minute deals as examples of how restaurants could potentially use dynamic pricing as a positive influence.
While the restaurant industry has a lot more moving parts than either hotels or airlines—individual products available at any time of day, rather than rooms booked for the whole day or flights leaving at different times—Kamlani noted that it presents restaurants and their marketers with several options for deals and promotions. Is their location near a college campus with its own calendar of events? Is it near a movie theater with a fixed schedule? How do you predict the business those places will bring, and how do you account for the expenses involved in serving them without raising the price of everything at once?
“Until now, pricing in restaurants has been largely simplistic. … I’m just going to take my regular menu prices and whatever Uber or DoorDash charges me—let’s call it 20%—I’m just going to bump up all my prices by 20%,” Kamlani said. “That’s not really the way you should approach this.”
