Wendy's may have doomed its 'dynamic pricing' idea before it even started

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Wendy's may have doomed its 'dynamic pricing' idea before it even started
Wendy's is going to start experimenting with surge pricing — and people are really mad about it.iStock; Rebecca Zisser/BI

It's weird to think about walking into a fast-food restaurant without knowing how much your burger and fries combo will cost you. It may also be the future.

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Wendy's has sparked some pretty understandable outrage after announcing it's going to start experimenting with dynamic pricing next year — in essence, changing the price of various menu items based on factors like the time of day. The chain is spending $20 million to outfit all its US restaurants with digital menu boards, which executives said would allow locations to play it a little faster and looser with menu selections and prices.

"Beginning as early as 2025, we will begin testing more enhanced features like dynamic pricing and daypart offerings along with AI-enabled menu changes and suggestive selling," Kirk Tanner, the CEO and president of Wendy's, said in the chain's fourth-quarter earnings call.

In a separate statement, a Wendy's spokesperson confirmed to me that the menu board would offer a variety of new features, including "dynamic pricing, different offerings in certain parts of the day, AI-enabled menu changes, and suggestive selling based on factors such as weather." The move will let the company be "competitive and flexible" with pricing and motivate customers to visit — and it will include discounts and value offers, the spokesperson said.

The announcement, predictably, has not gone over well with lovers of square burgers — or the internet at large. Many people aren't thrilled at the idea of a Frosty costing extra because it's hot outside and everybody else is also jonesing for a cool, sweet treat or waiting in line for some nuggets and suddenly seeing the price change when they're next at the register.

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There's no doubt Wendy's could have done a better job with the rollout here. The talk on the earnings call comes off as some vague technobabble focused on maximizing profits, which makes sense given that executives were talking to investors. In a different world, you could imagine the company laying this out as a win for consumers: "Come on in and get a discount on your favorite Wendy's sandwich when business is slow." That is not, however, the route it took — which is what's coming back to bite the chain.

Wendy's has attempted to do some cleanup after media outlets picked up the story, but it's probably a case of too little too late (and still too muddled). In a follow-up statement, Wendy's said it would not implement "surge pricing" and raise prices "when demand is highest," noting that it didn't use the phrase. Instead, it blamed the media, which it said "misconstrued" its plans and said that any new features it tests "would be designed to benefit our customers and restaurant crew members."

Knee-jerk reaction and poor messaging aside, dynamic pricing isn't really novel and may actually make some sense. Companies in other industries use surge pricing pretty regularly. Uber and Lyft do it, charging customers more when there's more demand for their services, like on Halloween or New Year's Eve or after the bars close on a Saturday night. Platforms such as Ticketmaster often use dynamic pricing models for concerts and sporting events. The same is true for airlines and flight tickets. Starbucks will often offer customers different discounts and rewards during off-peak hours.

Even in the analog world, variable pricing isn't outlandish. Happy hour has existed forever, as has the early-bird special. Moving companies often charge more on weekends and at the start and the end of the month. People bristle at it. The system can go frustratingly awry, and sometimes the model can feel downright gross, but it's ultimately the age-old business rule of supply and demand.

Wendy's may have doomed its 'dynamic pricing' idea before it even started
How much will this Frosty cost? Come on in to find out!John Shearer/Getty Images

In a way, this is Wendy's, which has been a digital laggard in a sector that's already not on the forefront of innovation, trying to catch up, Sean Dunlop, a senior equity analyst at Morningstar, said.

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"The restaurant industry is rarely the pathfinder when it comes to operational innovation and some of the technology changes that we see. It's typically an adaptation that consumers are already familiar with," he told me. For example, airlines got people used to checking in at kiosks before restaurants started to implement them. As Jonathan Maze, the editor in chief of the trade publication Restaurant Business, told CNN, this could be a "turning point" for fast food — if this works for Wendy's, you could see another chain thinking it should do the same.

While dynamic pricing may have a long history and other fast-food chains may be watching with interest, Wendy's may have doomed its own experiment. The chain is already pricier than most of its fast-food competitors, and by framing the initiative as a pricing strategy designed to please investors, Wendy's is playing into people's preexisting fears about dynamic pricing.

When people think of dynamic pricing, they think of Uber and airlines. They don't think of discounts and promotions.

In a Capterra survey of US consumers, 52% of respondents said they thought it amounted to price gouging, and only 34% said they thought it benefited consumers. Nearly two-thirds said it made it more difficult to budget their restaurant spending, and one-third said they'd order less frequently from restaurants that implement the practice. This makes sense: Nobody wants to drive 20 minutes to pick up food during their lunch hour and then discover they're on the hook for $5 more than they bargained for.

"When people think of dynamic pricing, they think of Uber and airlines. They don't think of discounts and promotions," Dunlop said.

How the company framed the decision on an earnings call makes sense in a vacuum — investors want them to show progress on their digital efforts, and they like the idea of bigger order sizes. But what's said in an earnings call doesn't always stay in an earnings call. And it's also worth pointing out that the people who are going to bear the brunt of consumer ire at Wendy's aren't the executives announcing the move or the investors they are trying to woo — it's the employees who are going to have to explain why a chicken sandwich just got $1.50 more expensive.

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Now, Wendy's has made an unforced error and has a real public-relations kerfuffle on its hands. Its communications around the matter have been deeply messy, and no matter what you call it, consumers are already wary of dynamic pricing, and they see the downsides more than the upsides. It's annoying enough when you try to order an Uber after a long night and are confronted with an eye-popping price. Now, imagine it at the fast-food counter.

Still, come 2025, that Wendy's $5 Biggie Bag may cost you $4.50 or $5.50, depending on the time of day. Whether this is a brave new world in fast food or a blip remains to be seen. Whatever the case, sir (or ma'am), this will be a Wendy's.


Emily Stewart is a senior correspondent at Business Insider, writing about business and the economy.

Update: February 28, 2023 — This story has been updated to include Wendy's follow-up statement on the new pricing model.

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