Benzinga - by Chris Katje, Benzinga Staff Writer.
A leading fast-food company could have a new trick up its sleeve to increase sales and profits, potentially changing the restaurant sector forever.
What Happened: Fresh off its fourth-quarter earnings results, The Wendy's Company (NASDAQ:WEN) recently highlighted a new way for future growth after missing revenue and earnings per share estimates from analysts.
Beginning in 2025, Wendy's will utilize surge-pricing that has become popular for ride-sharing companies. The restaurant company will charge more for certain menu items during peak times. This could mean items like a burger may cost more during the normal lunch or dinner hours, varying by location based on traffic and demand.
To facilitate this new pricing strategy, Wendy’s is investing $20 million in advanced, high-tech menu boards capable of adjusting prices in real-time, according to a report by The New York Post.
"As we continue to show the benefit of this technology in our company-operated restaurants, franchisee interest in digital menu boards should increase further supporting sales and profit growth across the system," Wendy's CEO Kirk Tanner said.
The CEO did not specify the potential peak prices or whether there would be price reductions during off-peak times with lower customer traffic.
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Why It's Important: Wendy's told The New York Post that "dynamic pricing" will allow the company to be competitive and flexible with pricing.
The new pricing method could help with staffing and scheduling at restaurants. The new method could also increase sales during normal off-peak hours.
While most people on social media were not fans of the change, Wendy’s might find an unexpected ally in billionaire Elon Musk, the CEO of Tesla.
"Seems like a good idea. Costs are fairly constant, but demand varies. Lower cost meals available off hours makes sense," Musk tweeted.
Musk speculated that the average meal costs at Wendy’s might decrease, leading to improved operating margins for the restaurant chain.
As noted by The New York Post, prices on fast food items can vary based on geographic location.
Ride-share companies like Uber and Lyft charge more based on demand on apps. Many industries also have price increases based on supply and demand, including airlines and hotels during big events in cities. Supply and demand remains one of the most basic economic principles today.
One big test will be whether other restaurant chains experiment with dynamic pricing, adopt a wait-and-see stance regarding Wendy’s initiative, or strategically leverage Wendy’s higher pricing as a marketing advantage for themselves.
The new pricing structure could also serve as a big test for Tanner, who was named the new CEO of the company in early 2024 after over 30 years with beverage giant PepsiCo.
WEN Price Action: Wendy's shares closed at $18.11 on Tuesday, versus a 52-week trading range of $17.64 to $23.90.
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