Wendy's Still Plans to Introduce Dynamic Pricing in 2025 — Here's Why It May Not Be a Great Idea

Wendy’s may want to rethink dynamic pricing altogether based on these surveys.

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Think you’re having a bad week? Try working at Wendy’s corporate office.

Over the last few days, the fast-food giant has been the recipient of major backlash over comments its CEO, Kirk Tanner, made to analysts regarding plans to introduce digital menu boards capable of displaying dynamic pricing — pricing which can fluctuate throughout the day — by 2025.

“We are planning to invest approximately $20 million to roll out digital menu boards to all U.S. company-operated restaurants by the end of 2025,” Tanner said on the call, Nation’s Restaurant News reported. He added, “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.”

It seemed clear-cut, but Food & Wine reached out for comment just in case. A spokesperson replied that the company is “making a significant investment” to grow its digital business, including rolling out digital menu boards in some U.S. restaurants. The spokesperson reiterated, “Beginning as early as 2025, we will begin testing a variety of enhanced features on these digital menuboards like dynamic pricing, different offerings in certain parts of the day, AI-enabled menu changes, and suggestive selling based on factors such as weather. Dynamic pricing can allow Wendy’s to be competitive and flexible with pricing, motivate customers to visit, and provide them with the food they love at a great value. We will test a number of features that we think will provide an enhanced customer and crew experience.”

Our story, and the dozens of others to appear online this week, called this “surge pricing” in the headline, a practice also known as “peak pricing,” which our friends at Investopedia define as “Peak pricing is a form of congestion pricing where customers pay an additional fee during periods of high demand.” Investopedia added that peak pricing is “one element of a larger comprehensive pricing strategy called dynamic pricing.” And Wendy’s is hoping to clarify that it meant it would offer discounts on products throughout the day, not that it would charge more during its busiest hours, implying its dynamic pricing would only involve prices going down.

In an additional statement provided to Food & Wine and others, a spokesperson noted, “Earlier this month, we issued our fourth quarter and full year 2023 earnings results and included an update on investments we are making in our digital business. One initiative is digital menuboards, which are being added to U.S. Company-operated restaurants. We said these menuboards would give us more flexibility to change the display of featured items. This was misconstrued in some media reports as an intent to raise prices when demand is highest at our restaurants. We have no plans to do that and would not raise prices when our customers are visiting us most. Any features we may test in the future would be designed to benefit our customers and restaurant crew members.”

The statement added, “Digital menuboards could allow us to change the menu offerings at different times of day and offer discounts and value offers to our customers more easily, particularly in the slower times of day. Wendy’s has always been about providing high-quality food at a great value, and customers can continue to expect that from our brand.”

In the end, it still means prices could be higher during peak hours and lower when it’s slow. Think of it like Wendy’s happy hour specials. But, there still may be no positive way to spin this, as the public has spoken, and to them, dynamic pricing appears to have no place in fast food.

It seems like an especially difficult time to discuss any changes to the cost of goods, considering restaurant prices spiked by more than 5% year-over-year this January, according to data from the Consumer Price Index. The report also noted that fast food prices rose by 5.8% in the same timeframe.

And dynamic pricing, even meant as a good thing, can be a trigger to consumers, who are already experiencing inflation fatigue. The New York Times pointed to a January 2023 survey by Capterra that showed that 52% of consumers surveyed equate dynamic pricing to “price gouging.” (A similar 2023 study by CivicScience found an even stronger majority, with 62% of its respondents calling dynamic pricing “akin to price-gouging.)

“We found that consumer sentiment on dynamic pricing is overwhelmingly negative and that most people are unlikely to use dynamic pricing in a way that benefits restaurants,” Capterra shared in its findings. It additionally noted that 42% would order out “less often or not at all” from a restaurant that adopted dynamic pricing. Moreover, the survey noted that dynamic pricing can add “friction” to the consumer experience, as 63% of respondents noted it would make “it harder to budget their spending on restaurants.”

One more important point the study noted, which Wendy’s certainly learned this week — consumers notice every. Little. Change.

“According to our survey, 81% of consumers check menu prices always or often before they choose where to eat, and half of consumers notice when restaurant prices change over time,” Capterra wrote. “That attentiveness costs restaurants: In the past year, over half of consumers have stopped ordering from a preferred restaurant due to an increase in menu prices.”

So while, yes, consumers have accepted the dynamic pricing models of airlines, ride shares, and hotels, it seems no one is ready for this method to hit fast food. But maybe if Wendy’s is lucky, people will be on board by 2025.

Note: We’ve repeatedly reached out to Wendy’s for comment and our emails have gone unanswered at the time of publication. We will update this story with any additional comments.

Read the original article on Food & Wine.