Will dynamic pricing work for restaurants?
The restaurant industry is debating the merits of dynamic pricing as the expansion of digital menus over the pandemic has made instant price changes easier. The big unknown is how patrons will react.
Better optimizing pricing could help offset the significant inflationary labor and food pressures restaurants are facing.
With dynamic pricing, operators could lower prices during off-peak times to better maximize seating capacity and labor. Encouraging price sensitive customers to order earlier or later outside of busy periods would also help staff better manage pickup or delivery orders.
At the same time, raising prices marginally during peak times would maximize profit. New apps offering dynamic pricing solutions, including Juicer and Sauce, claim online ordering and third-party delivery are providing the data to fine-tune price adjustments without jarring the customer.
“The low-hanging fruit here is to use all of that data to figure out, when things are busy, how can I make more money from that?” Ashwin Kamlani, co-founder of Juicer, told Food On Demand. “If I own a pizzeria and I’m on a college campus and have a line out the door at 1 AM because all the kids have been out partying, are they really going to care that the pizza’s now $11 instead of 10? Probably not, but that’s 10 percent more I can make on every pizza and that’s a big deal.”
Proponents also believe consumers have become accustomed to dynamic pricing through airlines, hotels and Uber.
Writing for QSR Magazine, Sherri Kimes, a professor at Hotel School at Cornell who specializes in pricing, said her research shows restaurant customers are fine with price changes based on factors such as time-of-day or day of week as long as it’s framed as a discount. She said, “What customers do not like is prices that vary all over the place without any particular reason.”
Still, some have reservations. According to Restaurant Business, Tim Voss, CTO of Focus Brands, parent of Moe’s Southwest Grill, Schlotzsky’s and other foodservice brands, said during the FSTEC conference in September, “I don’t want to go to a stage where I walk somewhere and I’m paying a different price than someone at the table next to me.”
- Restaurants May Finally Be Ready For Dynamic Pricing – Restaurant Business
- Juicer Says Dynamic Pricing Aids Labor, Delivery Cost Pressures – Food On Demand
- Is it Time for Dynamic Pricing in the Restaurant Industry? – QSR Magazine
- Dynamic Pricing for Restaurants: What Is It and Should You Explore It? – Square
DISCUSSION QUESTIONS: Do you see more potential benefits or drawbacks to dynamic pricing at restaurants and other foodservice establishments? How likely are a large number of eateries to begin using dynamic pricing in the next few years?