Tech Check is a regular column on restaurant technology by Senior Editor Joe Guszkowski. It's also a newsletter.
In a different world, we’d be talking about how dynamic pricing is sweeping the industry and providing a small but much-needed boost to restaurants’ sales and profits.
Instead, it looks like the tactic of changing menu prices based on demand may be a case of right place, wrong time.
On Tuesday, Juicer, one of the most prominent suppliers of dynamic pricing for restaurants, announced that it is no longer offering the product, in part because the prospect of real-time price fluctuations has become too unpopular.
CEO and co-founder Ashwin Kamlani pointed to Wendy’s plan to test dynamic pricing as an unfortunate tipping point for the technology. When the press picked up on the burger chain’s aside on a February earnings call, consumers were outraged. It didn’t help that many outlets reported that Wendy’s was adding “surge pricing” in the drive-thru.
The distinction is somewhat academic: Surge pricing implies large price increases at times of peak demand, while dynamic pricing refers to more surgical adjustments throughout the day. Consumers took it as a slap in the face regardless, and Wendy's eventually walked back its initial comments.
And while memories of that debacle would likely have faded with time, years of inflation have made prices a permanent hot-button issue. Most recently, grocery stores have been accused of price-gouging by using digital price tags to change prices instantly. That comes even as grocery inflation has slowed to normal levels in recent months.
As such, many restaurants are apparently choosing to steer clear of dynamic pricing, and understandably so. They have enough work to do to repair their value perception with consumers, and throwing dynamic pricing into the mix is not going to help. Even though it can offer benefits to consumers in the form of lower prices at certain times, the optics outweigh the reality, as it so often does.
It’s a shame, because restaurants need all the help they can get right now. Costs are up, traffic is down, and even the slightest edge can make a difference. Kamlani said that by adjusting prices by 5% to 10%, Juicer helped customers boost their third-party delivery sales by 10% to 15% on average. And, he added, customers didn’t seem to mind.
It’s not as if restaurants would be going out on a limb. Dynamic pricing and surge pricing are already widely used in other industries, from airlines to ride-sharing to concert tickets. Even third-party delivery apps use a form of dynamic pricing to calculate their delivery fees, and they continue to post record numbers.
No one likes it, but they live with it. And yet for restaurants—a famously difficult, low-margin business—the technology has been deemed off-limits by some. It’s yet another example of the double standard that gets applied to restaurants where tech is concerned.
Still, there is a future for dynamic pricing in restaurants. And it may come down to managing perceptions.
Kamlani said it needs a new name, for one, and I agree with him. “Dynamic pricing” smacks of corporate-speak; there’s a sense that the slick language is hiding something sinister. You can see why consumers made the connection to “surge pricing,” which, at the very least, is honest about itself.
Better yet, maybe dynamic pricing doesn’t need a name at all, freeing restaurants to be more creative with pricing without tying themselves to an unpopular concept.
“I firmly believe had Wendy’s just not said anything and they had just quietly implemented daypart offers, the consumer would have loved it,” Kamlani said. Instead, it may have set dynamic pricing back a bit.