Grocery Basket | Dynamic pricing is here to stay, whether we like it or not

Dynamic pricing is not a new phenomenon. What is new is the industry’s openness to recognizing the use of artificial intelligence (AI) and its impact on pricing. Transparency is a good idea, but consumers need to see how they can benefit from the use of AI in the industry.

Wendy’s recent revelation of its plans to implement time-of-day pricing at some of its U.S. locations has sparked a flurry of discussion about dynamic pricing in the fast food industry . This strategy, although perceived as a public relations mistake by Wendy’s, is not a new concept. Dynamic pricing has a long presence in various sectors, including the fast food industry in Canada.

Dynamic pricing involves adjusting prices in response to fluctuating demand in the supply chain. Essentially, prices increase with increased demand and decrease when demand weakens. This pricing mechanism has been a mainstay of commodity markets for centuries. With the advent of AI and the proliferation of chat rooms like ChatGPT, it’s no surprise that businesses are now more openly discussing their use of AI and its impact on their operational strategies and consumer engagement .

However, the timing of Wendy’s announcement couldn’t have been more inopportune. Amid growing concerns over escalating food prices, the admission of “spike pricing” practices was met with significant backlash from consumers, leading to widespread calls for boycotts on media platforms social. Since some of Wendy’s competitors already use dynamic pricing strategies, some may have viewed Wendy’s disclosure unfavorably. In quick response, Burger King launched a “free burger” promotion, further intensifying 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 perspective, optimizing operations to minimize costs is crucial. This encompasses a range of strategies, including efficient procurement practices, reducing food waste and managing staff to ensure the right staff are deployed at the right time and in the right place.

In addition to reducing wait times, these measures allow products to be fine-tuned to align with customer preferences.

Despite these potential benefits, the moral contract between industry and consumers remains unclear. Consumers have yet to grasp how dynamic pricing can work in their favor. In the coming years, it is expected that applications will emerge to inform consumers about the optimal times to purchase their favorite products at the best possible prices. Dynamic pricing has the potential to create a more dynamic and competitive market, similar to a game of cat and mouse. However, equipping Quebec consumers to navigate this new pricing landscape is a challenge. Quebecers who are less engaged in online food purchasing could be penalized once dynamic pricing gains popularity.

For now, companies are likely to remain tight-lipped about their pricing strategies.

The impact of dynamic pricing extends beyond the fast food industry to the realm of food retail. A notable example is the German supermarket chain METRO (no relation to the company known here by the same name), which made headlines in 2023 for its experiments with dynamic pricing. The chain uses smart packaging to monitor use-by dates on fresh foods, allowing price adjustments as products approach their expiration date. This innovative approach mitigates food waste, but also offers consumers greater flexibility in their purchasing decisions, providing clear benefits for both the retailer and the consumer.

As we look to the future, dynamic pricing models must put consumers first, ensuring that benefits are not just reaped by industry. The goal should be to foster a more transparent and fair market, where consumers are equipped with the knowledge and tools to make informed purchasing decisions. In this regard, the food industry has a significant role to play in the evolution of dynamic pricing, with a focus on improving consumer trust and satisfaction.


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