There’s the beef! Wendy’s won’t use ‘surge’ pricing

Consumers will pay more for a flight to Florida or for a hotel room during peak vacation times. They fork out more for a rush-hour Uber ride, and rely on apps like ParkWhiz or ParkMobile to book spots for their cars at premium prices.

But a social media backlash last week to media reports that said fast-food chain Wendy’s had plans to increase menu prices during its busiest hours showed a limit to where, when and for what U.S. consumers will trade more cash for convenience. It looks like a Dave’s Double Combo or a Frosty won’t make the cut.

Wendy’s clarified its intentions Wednesday, drawing a distinction between the company’s “dynamic pricing” strategy and “surge pricing” practices that charge more during times of peak demand. The company said any fluctuations it decides to test in the future “would be designed to benefit our customers and restaurant crew members.”

“Beginning as early as 2025, we will begin testing more enhanced features like dynamic pricing and day-part offerings along with AI-enabled menu changes and suggestive selling,” said Wendy’s CEO Kirk Tanner during a Feb. 15 earnings call. Tanner took over as CEO on Feb. 5.

The company’s digital menuboards could allow pricing adjustments and offer different menu items throughout the day. Artificial intelligence was already part of the chain’s strategy, and Tanner reinforced the company’s commitment to its “Wendy’s FreshAI” system.

Wendy’s announced Wendy’s FreshAI in 2023 with the aim of creating more automated drive-thru experiences. The company has a multiyear strategic partnership with Google Cloud. With 75-80% of Wendy’s fans choosing the drive-thru, the restaurant chain said it was piloting an “automated drive-thru ordering system (that) is intended to feel as natural as interacting with a crew member, providing quick answers to customer questions and taking accurate food orders, even if items are not phrased exactly as they appear on the menu.”

Dynamic pricing and surge pricing are both models that continuously adjust prices based on a range of factors. Dynamic pricing can involve both increasing and decreasing prices, based on market conditions, the season and supply changes. Surge pricing is a subset of dynamic pricing and only involves increasing prices based on supply and demand, experts say.

Dynamic pricing has been part of some industries almost as long as they’ve had technology capable of adjusting prices quickly.

Airlines, for instance, regularly raise and lower fares depending on the time of year, expected customer surges, and projections of how many seats they can fill at various times.

Hotels do much the same with room reservations. Other places where dynamic pricing shows up include concerts, sporting events, parking facilities and street meters. Utilities use dynamic pricing to limit usage at times of high demand that could threaten blackouts, notes Daniel Freund, a business professor at the Massachusetts Institute of Technology.

Neil Saunders, with research firm GlobalData, said though dynamic pricing is already ubiquitous, the grief Wendy’s got shows how sensitive consumers are to price variations.

“Dynamic pricing is common in travel and accommodations. There’s a fixed level of supply,” Saunders said. “But if one minute a burger is $5 and the next minute it’s $6, and then it goes up and down again, they will simply get annoyed.”

Experts say dynamic pricing is not common in restaurants, but a growing number are charging more for items that patrons order using third-party apps like Uber Eats and DoorDash.

Debbie Roxarzade, founder and CEO of Las Vegas-based Rachel’s Kitchen restaurants, uses technology from a startup called Sauce Pricing to help adjust prices for users of third-party apps based on algorithms and the in-person traffic at the chain’s nine restaurants.

For example, a sandwich that would cost $12 on the regular menu might rise to $12.60 for a delivery customer during peak hours but fall to $11.05 during slow times such as after lunch, Roxarzade said.

“It’s helpful to streamline operations and keep things fresh and clean and more consistent instead of having a huge peak in demand and then just very little sales in other hours,” she said.

Roxarzade emphasized that her physical locations do not employ such dynamic pricing methods.

Experts say it’s going to be hard to change public attitudes toward dynamic pricing, especially in fast-food restaurants. At the same time, charging customers to choose a seat or check a suitcase for a flight hasn’t always been the routine it is now.

It’s also possible to approach dynamic pricing in a way that defuses consumer resentment, MIT’s Freund said.

“Rather than saying we’re going to use surge pricing at peak demand periods, they could say we’re going to explore giving discounts during off-peak periods,” he noted. “And of course, those two statements are equivalent.”

Michelle Chapman from The Associated Press contributed to this report.