Restaurant Industry Insights

The Ongoing Debate on Dynamic Pricing in the Restaurant Industry

Despite Wendy’s recent reversal of its dynamic pricing pilot, the debate over dynamic pricing in the restaurant industry remains lively and contentious. This issue, viewed by many as crucial for the viability of restaurants, was a focal point at the National Restaurant Association show in Chicago last weekend. Sterling Douglass, CEO of Chowly, reignited the conversation by highlighting the potential benefits of dynamic pricing for restaurants.

Chowly has been exploring dynamic pricing for some time, launching its Smart Pricing tool in May 2023. This tool analyzes factors like weather, peak hours, holidays, and local order volumes to adjust prices on third-party menus, ensuring restaurants capitalize on supply and demand fluctuations. One restaurant group with 12 locations using this tool saw an additional $10,000 profit per store over 12 months.

Consumer perceptions of dynamic pricing are mixed. A National Restaurant Association survey found that 61% of respondents viewed dynamic pricing favorably. However, a survey by tech supplier HungerRush indicated that 81% of consumers would change their dining habits or avoid restaurants using dynamic pricing. Proponents argue that consumers already accept dynamic pricing for hotels, flights, and rideshares, so why not for dining?

Douglass emphasizes that dynamic pricing can be applied selectively. For instance, operators might adjust prices only on third-party delivery apps, encouraging direct orders from customers. About 1,000 restaurants are already using Chowly’s tool in this manner.

The proliferation of delivery apps and digital menus, accessed via QR codes, has facilitated the implementation of dynamic pricing in restaurants. 

Douglass believes dynamic pricing is inevitable in the restaurant industry, though he acknowledges the hesitancy among operators due to the potential for customer backlash. Wendy’s recent experience underscores the importance of customer sentiment and transparent communication. After announcing plans to implement dynamic pricing, Wendy’s faced significant consumer resistance and quickly backtracked. 

The dynamic pricing debate mirrors the continued discussions about service fees versus tipping. While many would agree that the industry would benefit from moving away from tipping, customer perception makes this transition challenging.

As the restaurant industry evolves, dynamic pricing remains a hot topic. The potential benefits are clear, but so are the challenges. Success will likely depend on how well restaurants balance profitability with customer expectations and perceptions.

 

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