• The food-tech startup Sauce allows restaurants to use dynamic pricing to raise delivery prices.

• Sauce is backed by the venture capitalist Kevin Novak, who created surge pricing for Uber.

• A fast-casual chain said it was able to double its delivery profit margins using Sauce at 49 stores.

The venture capitalist Kevin Novak, an early data scientist at Uber, invented surge pricing for the ride-hailing giant.

Novak, the founder and managing partner of Rackhouse Venture Capital, is once again touting the benefits of supply-and-demand pricing. Only this time, he's not coding. He is a seed investor in Sauce, a dynamic-pricing startup that uses machine learning to adjust menu prices on delivery orders.

The timing is right for the industry.

Raising menu prices to offset delivery fees and rising labor and supply-chain costs is becoming standard practice at chains like Chipotle and McDonald's. In October, money spent on food away from home, which includes restaurants, rose 8.6% over last year, according to the Consumer Price Index. Chipotle said pricing on delivery orders was up 13% in the third quarter, year over year.

But "blanket price increases are no longer the best strategy" to combat rising costs, Colin Webb, the cofounder and CEO of Sauce, told Insider.

Founded in 2020, Sauce's AI-powered software can suggest different online menu prices for different times of the day based on a restaurant's historical and real-time delivery-ordering patterns.

"We actually will recommend strategies that both increase and decrease prices, and restaurants are able to choose their preference or build their own strategies from scratch," Webb told Insider.

In some cases, "we've seen restaurants during a peak time raise their price 40%," he said.

'We are trying to make sure that we are not getting our margin heavily eroded'

Webb said restaurants are taking a closer look at dynamic pricing as they face inflationary pressures and a possible recession in 2023.