Wendy’s new president and CEO, Kirk Tanner, started his first month by firing up the public during the quarterly earnings call about a plan to use dynamic pricing to help increase the company’s margin opportunities.
Wendy’s Dynamic Pricing Announcement Puts New CEO Kirk Tanner In Spotlight
Many pundits have criticized the move since food is a non-discretionary category of spending and changing prices based on demand may unfairly disadvantage lower-income families.
“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 Tanner.
Consumers expect dynamic pricing for plane tickets and UberUBER +0.1% rides but not for essentials.
In consumers’ eyes, Wendy’s plan to use technology advancements in this manner is a way to further exploit lower economic classes by charging more for products when demand spikes.
After generating much comment and controversy over the dynamic pricing statement, Wendy’s came back a week and a half later with a statement clarifying the intention of the company.
The company stated they were looking to advantage customers by lowering prices and using digital menu boards to give more flexibility to change the display of featured items.
“One initiative is digital menu boards, which are being added to U.S. company-operated restaurants.
We said these menu boards 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,” stated Wendy’s media.
However, in the earnings call, it was clear that the $30 million investment in its digital menus using artificial intelligence (AI) technologies would be tested to increase company profits by changing prices and using suggestive selling of items to increase order size.
“As we continue to show the benefit of this technology in our company-operated restaurants, franchisee interest in digital menu boards should increase, further supporting sales and profit growth across the system,” said Tanner in the earnings call.
After pushback from the public, Wendy’s tried to clarify the intent of this comment by the CEO by stating, “Digital menu boards 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 the day.”
The statement by Wendy’s Media does not support the context of higher profits since lowering the prices would reduce margins.
It was clear by the earnings call and Tanner’s comments that the company planned to use AI technology and digital pricing to advance its profits further.
Competitors Poke Fun at Wendy’s
The good news for Wendy’s customers is that the company has stated it has no intention of raising its prices during peak periods and plans to add more value offers and discounts.
The bad news for Wendy’s is that its competitors have already taken advantage of this misstep by the company, allowing them to make fun of Wendy’s.
Burger King tweeted, “We don’t believe in charging people more when they’re hungry.” The company then offered discounts on Whoppers for the rest of the week.
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Reducing pricing at slower times has two benefits. The first is to reduce waste since prepared food is perishable.
The second is that lower pricing during slower times helps to better match customer demand to staffing needs, especially in brick-and-mortar locations like restaurants and fast food chains. Happy hour and early bird specials are examples of this tactic.
Using dynamic pricing and digital menus for margin improvement means selling items at higher prices to recoup a better margin and/or selling higher profit items.
The latter can be accomplished by highlighting these items when the restaurants are busy.
Most people understand that companies need to make a profit. The uproar was driven by Wendy’s comments regarding the use of dynamic pricing to help drive the company’s profits, which often means surge pricing during peak times in the eyes of the consumer.
The CEO is not solely to blame. As with all earnings calls, these statements are prepared in advance and approved by the media team.
Even so, it was probably a big misstep for a CEO’s first month on the job. Tanner, who spent 32 years at PepsiCo, should have known better after Coca-Cola’s +0.4% backlash on dynamic pricing back in 1999.
Burger King and McDonald’s menus already use dynamic pricing
Wendy’s said the soft part loud and angered its customers while also earning scorn from politicians eager to scold “greedy” businesses.
The number two hamburger chain in the United States created quite the backlash when its new CEO Kirk Tanner said the chain planned to use dynamic pricing.
That sounds outrageous as under that model your food would cost more during busier times of the day.
In reality, tons of businesses, including restaurants use dynamic pricing to control crowds and drive traffic to less busy times of the day.
Disney World, for example, charges different admission prices based on the time of year.
It costs more to visit one of the company’s theme parks during the holiday season than it does during periods when kids are in school.
That’s a good thing for consumers as it gives them different price point options which makes visiting Disney World possible.
If the company had to use a single price for admission tickets every day, it would likely be higher than the current cheapest-priced days.
The same pricing scheme has also been adopted by cruise lines. It’s cheaper to sail Royal Caribbean or Carnival ships when kids are in school and holiday weeks can cost triple the price of non-holidays for the same itinerary on the same ships.
Anyone who has stayed in hotels understands the concept of dynamic pricing where demand drives prices up and lack of demand drives them down.
It’s not a new concept, but Tanner did not do a great job presenting Wendy’s plan and the company had to backtrack.
Wendy’s presented its pricing plan wrong
Tanner did not consider the potential backlash when he talked about the company’s pricing plans during its fourth-quarter earnings call.
“We expect our digital menu boards will drive immediate benefits to order accuracy, improve crew experience and sales growth from upselling and consistent merchandising execution.
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,” he said.
To consumers, dynamic pricing tends to make people think of Uber and Lyft which use “surge pricing” during busier times of day.
That’s an attempt to push demand into dayparts which are less busy to both maximize revenue and incentivize customers to move their business to cheaper times of day.
That’s quite common in the fast-food business, but McDonald’s, Restaurant Brands International’s (QSR) Burger King, and non-burger players like Starbucks and Taco Bell are just more clever about how they do it.
Wendy’s will test new menus that change prices throughout the day
The price of a Wendy’s Frosty could soon fluctuate throughout the day as the chain looks to introduce Uber-like surge pricing on its menu.
The practice, known as “dynamic pricing,” will begin testing in 2025, Wendy’s recently revealed in an earnings call. It’s part of a $20 million investment in new digital menu boards at its US restaurants that enable them to change prices depending on demand.
Few details were released about the change, but Wendy’s CEO Kirk Tanner said the new menus will let the fast food chain test “more enhanced features like dynamic pricing and day-part offerings along with AI-enabled menu changes and suggestive selling.”