Dynamic pricing is reshaping the fast-food industry
Wendy’s recent revelation of its plans to implement time-based pricing at some of its U.S. outlets has sparked a flurry of discussions about dynamic pricing in the fast-food industry. While people perceived Wendy’s strategy as a public relations misstep, dynamic pricing is not a novel concept. It has a longstanding presence in various sectors, including the fast-food industry in Canada.
Dynamic pricing involves adjusting prices in response to fluctuating demand across the supply chain, including at consumer price points. Essentially, prices rise with increased demand and fall when demand wanes. This pricing mechanism has been a staple in commodity markets for ages.
With the advent of AI and the proliferation of chatbots like ChatGPT, it’s no surprise that companies are now more openly discussing their use of AI and its transformative impact on their operational strategies and consumer engagement.
However, the timing of Wendy’s announcement could not have been more inopportune. Amid growing concerns over escalating food prices, the admission of “surge pricing” practices was met with considerable backlash from consumers, leading to widespread calls for boycotts on social media platforms.
Given that Wendy’s competitors already employ dynamic pricing strategies, some may have viewed Wendy’s disclosure unfavourably. In a swift response, Burger King launched a “free burger” promotion, further intensifying the competitive dynamics in the fast-food sector.
The integration of AI into business operations suggests that the application of dynamic pricing is still in its infancy. From an economic standpoint, optimizing operations to minimize costs – encompassing a range of strategies, including efficient procurement practices, reducing food waste, and managing staffing to ensure that the right personnel – are deployed at the right time and place is crucial. These measures not only reduce wait times but also enable the fine-tuning of products to align with customer preferences.
Despite these potential benefits, the ethical contract between the industry and consumers remains unclear. Consumers have yet to grasp how dynamic pricing can work in their favour. It is anticipated that, over the coming years, applications will emerge to inform consumers about the optimal times to purchase their favourite products at the best possible prices.
Dynamic pricing has the potential to create a more vibrant and competitive marketplace, akin to a cat-and-mouse game. However, equipping consumers to navigate this new pricing landscape is an ongoing challenge, and for the time being, companies are likely to maintain a low profile regarding their pricing strategies.
The impact of dynamic pricing extends beyond the fast-food industry to the realm of food retailing. A notable example is the German supermarket chain METRO, which made headlines in 2023 for its dynamic pricing experiments. The chain has been utilizing smart packaging to monitor the expiration dates of fresh foods, allowing for price adjustments as products approach their expiration dates. This innovative approach mitigates food waste and provides consumers with greater flexibility in their purchasing decisions, offering clear benefits to both the retailer and the consumer.
As we look to the future, dynamic pricing models must place consumers at the forefront, ensuring that the benefits are not solely reaped by the industry. The goal should be to foster a more transparent and equitable marketplace where consumers are empowered with the knowledge and tools to make informed purchasing decisions.
In this regard, the food industry has a significant role to play in shaping the evolution of dynamic pricing, with a focus on enhancing consumer trust and satisfaction.
Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.
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