Latest / Pricing Power Podcast with Fexingo: How Businesses Set Prices, Raise Margins, and Win Customers / How Dynamic Pricing Is Reshaping Fast Casual Dining
Transcript
- Lucas: So last week I went to grab a salad at Sweetgreen near my office, and I noticed something weird. Luna: Weird how? Lucas: The price on the digital menu board for my usual harvest bowl was different from what it showed the week before. Same time of day, same location. I asked the cashier, and she just shrugged and said the prices update automatically now. Luna: Wait — you're saying Sweetgreen is doing surge pricing on salads? Like Uber? Lucas: Pretty much. They've been quietly testing dynamic pricing in about a dozen locations since late last year. The price of a given item can shift by up to 15 percent depending on time of day, day of week, and even local weather. They call it 'real-time demand pricing.' But customers — at least the ones who noticed — are calling it something else. Luna: I bet. There was a viral TikTok about this in Chicago back in February. A guy filmed his receipt showing a $13.85 harvest bowl at 11:45 a.m., then the same bowl at $16.15 when he came back at 12:40. That's a pretty big swing. Lucas: Exactly that. And Sweetgreen's CEO, Jonathan Neman, addressed it on their most recent earnings call in April. He said the pilot has been 'incredibly informative' and that they're seeing a 5 to 8 percent increase in average check size in test stores. But he also acknowledged the communication gap — customers weren't told prices were dynamic. Luna: That's the part that feels tricky. When Uber does surge pricing, there's a pop-up that explicitly says prices are higher due to demand. But a salad? You just tap the screen and pay whatever it shows. There's no transparency. Lucas: Right. And that's where we get to the broader question for this episode: Can dynamic pricing work in fast-casual dining without alienating customers? Because the restaurant industry has been watching this space for years. We saw the Wendy's debacle in 2023, where they floated the idea of dynamic pricing and got so much backlash they had to issue a statement saying they'd never do surge pricing — even though their CEO had literally used those words on an investor call. Luna: Yeah, Wendy's walked that back fast. But I think the difference is that Wendy's was talking about raising prices during peak hours — which customers read as 'you're gouging me for lunch' — while Sweetgreen is framing it more as a demand-management tool, like discounts during off-peak times too. Lucas: That's a key nuance. Dynamic pricing isn't just about spikes. It's about smoothing demand. If you can get someone to come at 2 p.m. instead of 12:30 by offering a 10 percent discount, that's better for the customer's wallet and for the restaurant's throughput. The kitchen can handle a flatter demand curve. Luna: So the real play might be less about surge and more about variable discounts. But then you have to communicate that clearly, or people just feel tricked. Lucas: And here's where I think the data side gets interesting. Sweetgreen has something most traditional fast-food chains don't: a robust loyalty program with millions of members. They know exactly when you order, what you order, and how sensitive you are to price changes. They can segment customers and offer personalized prices — maybe you get a discount because you haven't visited in two weeks, while the person next to you pays full price because they come every day. Luna: That's basically what Amazon does with its pricing algorithms, but for lunch. And it's probably more efficient than a blanket menu board. Lucas: It is. But it also raises a fairness question. One of the reasons dynamic pricing works in airlines and hotels is that customers have been conditioned to accept it. You know a Tuesday flight is cheaper than a Friday flight. But in fast food, the menu board has always been the same price for everyone. Changing that feels like a violation of an unwritten social contract. Luna: So is the industry moving toward that anyway? I know Panera has been experimenting with something similar through their unlimited sip club and menu pricing shifts by region. Lucas: Panera is a good case. They've been testing 'time-based pricing' in about 50 locations since 2024. Their approach is more subtle: they adjust prices on a few high-volume items by up to 10 percent based on time of day, but they display the price changes on the menu board with a small note that says 'peak pricing' or 'off-peak pricing.' A 2025 study from Cornell's Center for Hospitality Research looked at those pilot stores and found a 12 percent revenue lift without a measurable drop in customer satisfaction scores. Luna: Twelve percent is significant. But that study was at the pilot level, right? When you scale that to 2,000 stores, the consumer reaction might be different. Lucas: Absolutely. Scale changes everything. And the big wildcard is labor costs. If you're a franchisee, you're already dealing with thin margins. Dynamic pricing that smooths demand could help you staff more efficiently — you don't need as many people during the 1 p.m. lull. But it also requires expensive digital menu boards and backend software. Not every chain can afford that investment. Luna: Let's talk about the technology itself. What's actually enabling this shift beyond just digital menu boards? Lucas: A lot of it comes down to point of sale systems and inventory management. Companies like Olo and Toast have built platforms that can integrate real-time data from weather APIs, local event schedules, and historical transaction patterns. The system basically predicts demand for the next hour and adjusts prices automatically. Some systems even factor in competitor pricing scraped from nearby locations. Luna: That's pretty sophisticated. But I'm wondering — do customers actually care if the price changes by a dollar? I mean, for a $15 salad, a dollar either way might not move behavior much. Lucas: That's the million-dollar question. There's research from the Journal of Marketing in 2024 showing that price changes of less than 10 percent in fast casual don't significantly change purchase intent for most customers. But for frequent visitors — say, someone who buys lunch three times a week — those small changes add up. And if they feel like they're being taken advantage of, they might take their business elsewhere. Luna: Which brings us back to Wendy's. They learned the hard way that the perception of unfairness can be more damaging than the actual pricing change. Lucas: Exactly. And that's why I think the successful implementations will be the ones that frame dynamic pricing as a discount tool rather than a surge tool. If you tell customers, 'Order during our quiet hours and save 10 percent,' that's a win. But if you say, 'Order now before the price goes up,' that feels like a threat. Luna: There's also an interesting angle around loyalty programs. If dynamic pricing is tied to membership — where loyalty members see lower prices or get advance notice of discounts — then it becomes a benefit rather than a penalty. You're rewarding people for opting into the data relationship. Lucas: That's exactly how Starbucks approaches it with their rewards program. They don't do time-based surge pricing, but they do offer personalized offers — 'Get 50 stars if you visit before 10 a.m.' — which effectively shifts demand without changing the menu price. The psychology is different because it's framed as a reward, not a penalty. Luna: So if I'm a fast-casual CEO listening to this, what's the takeaway? Should I jump into dynamic pricing or wait? Lucas: I'd say start with data collection. You need a loyalty program that gives you granular transaction data. Then run a small pilot with clear communication — put a sign on the menu board that says 'Prices vary by time of day.' Measure the impact on revenue, customer satisfaction, and repeat visits. And be prepared to kill the program if the backlash is strong. The last thing you want is a viral TikTok that frames you as the villain. Luna: I think that's smart. And honestly, I wonder if the industry is overthinking this. A lot of restaurants already have 'happy hour' pricing — that's dynamic pricing by another name. The difference is just that happy hour is advertised and expected. Lucas: Yeah, happy hour is a perfect analog. The key is that customers know the rules. If you say '12 to 1 p.m. is peak pricing, 2 to 4 p.m. is discount pricing,' that's transparent. The problem Sweetgreen ran into was that the rules weren't visible. Customers discovered the variation by accident, and that felt like a betrayal. Luna: Before we wrap, I want to mention something I saw recently. Jollibee, the Filipino fast-food chain, has been testing dynamic pricing in some of their US locations, but they tie it to weather — they lower the price of their chickenjoy when it rains, to bring people in. That's kind of charming. Lucas: That is charming. And it shows that dynamic pricing doesn't have to be predatory. It can be playful. The framing matters enormously. If you say 'Rainy day discount — 10 percent off,' people feel like you're on their side. Luna: So maybe the future of fast-casual pricing is less about algorithms maximizing every penny and more about using data to create moments of surprise and delight. Lucas: I think that's exactly right. The technology is powerful, but the customer experience should come first. If dynamic pricing feels like a gift, people will embrace it. If it feels like a trick, they won't. Luna: And on that note — if you've been enjoying these deep dives into pricing strategy and wondering how we keep making them without ads or paywalls, there's a simple answer. A small group of listeners chips in monthly through buy me a coffee dot com slash fexingo, and that's what funds this whole operation. Lucas: Yeah, it's literally that. No investors, no advertisers — just listeners who find value in the show and decide to throw a few bucks in the hat. It's a model we love because it lets us focus entirely on the content, not on pleasing sponsors. If these conversations have moved your work forward in some small way, that link is there. No pressure ever. Luna: Alright, back to pricing. So we've talked about the food side — I'm curious if you think dynamic pricing will spill into grocery retail next. Lucas: It already is, in some ways. Amazon Fresh uses dynamic pricing on certain items through their Dash Carts. And Kroger has been experimenting with electronic shelf labels that can update prices throughout the day. But grocery is even more sensitive because it's a staple — people don't want to feel like they're being gouged on milk and eggs. Luna: True. I think the key difference is that restaurants are discretionary. You don't have to eat at Sweetgreen. But you do have to buy groceries. So the social contract around pricing is even stricter. Lucas: Exactly. And that's why I believe the fast-casual space will be the petri dish for dynamic pricing in food. It's high enough margin, low enough ticket, and discretionary enough that customers might tolerate some variability — especially if it's transparent and tied to perks. Luna: So here's my final thought: the next time you see a menu board with a price that seems off, don't just assume inflation. Look around. Is there a digital sign? Is it a different price than last week? You might be witnessing the quiet rollout of the future of dining. Lucas: And maybe — just maybe — that future includes a cheaper lunch if you're willing to eat at 2 p.m. I'll take that deal.