Wendy’s surge pricing backlash—what marketers can learn

In the restaurant industry, it’s called dynamic pricing. But Wendy’s consumers heard “surge pricing.” And surge pricing can get expensive. That is the sentiment that Wendy’s is facing after CEO Kirk Tanner told analysts during a recent conference call that the burger chain plans to test dynamic pricing via digital menu boards in all U.S. company-operated restaurants by 2025. “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,” Tanner said on a Feb. 15 call. “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.” The comments, made nearly two weeks ago, have drawn fresh attention this week as critics have taken to social media to complain about what many see as Uber-like surge pricing, causing PR complications for the chain. “Tell us you don’t want our business w/o telling us you don’t want our business,” wrote one user on Twitter. Check out the latest Ad Age events and award programs Gary Stibel, CEO and founder of the New England Consulting Group, said that dynamic pricing creates uncertainty for customers. “This violates the correlation in [quick service restaurants] between simplicity and profit,” he said. “This is creating a new opportunity for a customer to be disappointed. Can you imagine the customer debate with employees over why something was $3 last week and $4 this week?” Goodbye @Wendys - this is ridiculous. Tell us you don't want our business w/o telling us you don't want our business.— Milenka~ (@MilenaAmit) February 26, 2024 “The market will regulate itself”The market: pic.twitter.com/NK6SlhY1Dd— Kenneth Dredd (@KennethDredd) February 27, 2024 so will @Wendys have some sort of ticker or signage indicating if or when pricing will increase or decrease? and if people try to arb the price changes, will that affect pricing? have to say, too much thinking involved so will continue to not dine there— @richriker (@richriker) February 27, 2024 “Dynamic pricing? I guess I will pick lunch from the other 8 choices on the same street! What are you thinking??” another wrote in the comment section of a recent Wendy’s TikTok. “I think it’s worth an experiment,” said David Henkes, senior principal and head of strategic partnerships at foodservice industry consultancy Technomic. “It would be a way to drive incremental revenue. But the consumer backlash is because they feel that the price is not fairly based on inputs, and they don’t want to feel gouged for choosing to come here for lunch.” Wendy’s, in an email to Ad Age, stated that one of the benefits of dynamic pricing will be to “offer discounts and value offers to our customers.” The digital menu boards are meant to drive traffic and value at slower parts of the day, it continued, as well as update the menu based on weather “for an improved customer and crew experience.” In a later statement, Wendy’s said: “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.” “Consumers have generally accepted surge pricing in some industries (e.g., ridesharing), but whether they will be comfortable paying one price for a Frosty today and something higher tomorrow is an open question, especially given the general inflation consumers have experienced over the past couple of years,” wrote Kim Whitler, an associate professor of business administration at the University of Virginia’s Darden School of Business. The ire comes at a time when consumers are still feeling higher dining and food costs. Food costs accounted for over 11% of the average consumer’s income in 2022, according to the U.S. Agriculture Department, the highest it’s been in 30 years. And while food inflation has moderated some since then, dining out costs have remained stubbornly high. WK Kellogg’s CEO Gary Pilnick offered a solution to the situation during a recent interview on CNBC—that cash-strapped shoppers just eat cereal for dinner—and his suggestion sparked criticism on social media. @pj3_pastorj3 CEO of Kellogg is now pushing cereal FOR DINNER! 🤦♂️ #WorkingClass #For #EatTheRich #AmericanDecline #CorporateGreed #Inflation #Poor #2024 ♬ original sound - PJ3 Wendy’s isn’t the first brand to try dynamic pricing. AMC Theaters tested out the tactic for prime seating in movie theaters in three states, and stopped after negative reviews. How dynamic can it get? Others agreed that Wendy’s needs to be more transparent about the potential pricing variability. Henkes noted that when the menu boards roll out next year, consumers may not notice if their burger cost a little more than the person in front of or behind them in the drive thru. “In practice, Wendy’s may hope consumers don’t notice that, or notice that it was 15 cents cheaper last week,” he said. “However, consumers are already very sensitive to this, they see it on their grocery bill. When it comes to food, we generally know what we are paying to put food in our mouths.” More: Restaurants drive loyalty apps in the face of inflation “Of course, the magnitude of the variance will matter,” Whitler wrote. “For example, is there a 5% differential between the high and low price or something more, like a 50% differential?” (Tanner did not discuss pricing bands on the earnings call.) But Barry Thomas, a senior analyst at Kantar, said that menu prices, even if digital, may not update as fast as consumers think. “Generally pricing changes are in the cents, not dollar,” he said. “It would not be surprising to see incremental changes around dayparts, or offering snack and drink specials from 2 p.m. to 5 p.m. Sure maybe a burger costs more at 11 p.m. than 11 a.m., but you have to pay staff more to be there that late.” He noted that digital menus can be very beneficial in reducing waste, labor and telling consumers what is out of stock. Workers won’t have to spend time taking down and throwing away old paper ads that show seasonal or limited-time offerings, and items that are out of stock or low stock could be noted as such on the board to manage customer expectations. Stibel says there is a better way to incorporate dynamic pricing so that consumers don’t feel like they showed up at the wrong time and got charged more—by offering lower prices to rewards members. “Dynamic pricing could be done through the rewards program,” Stibel said. “Keep the pricing on the menu fixed, but then offer dynamic cost reductions or limited-time price specials for rewards members. Have a breakfast sandwich be $2 off for the next hour. It would encourage reward signups.” Sign up for Ad Age newsletters From influencer marketing to agencies, get the latest news and analysis delivered to your inbox Click here Now what? While Wendy’s Tanner made the comment during an earnings call—a venue that normally does not gain notice from average consumers—several marketing experts agreed it was foolish to think that only financially minded analysts would hear his remarks. They all agreed that Wendy’s needs to move quickly to address consumer concerns. “If it is truly dynamic pricing, then it can also go down, and perhaps make a meal more affordable,” said Henkes. “They should highlight that affordability.” Stibel agreed. “The cat is out of the bag. Use it to your advantage by giving consumers a pleasant surprise, either with rewards or lowering prices.”

Wendy’s surge pricing backlash—what marketers can learn

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