Imagine craving some delicious barbecue on a Saturday night. You open your favorite delivery app and are met with a $18 price tag for a pulled-pork sandwich from Cali BBQ. Ouch! But wait, hold off on that order for a few days. That same sandwich could be yours for a cool $12 on a weekday afternoon.
Welcome to the world of dynamic pricing in the restaurant industry. This isn't science fiction – it's the new reality some restaurants are exploring to navigate rising costs and maximize profits.
Just like airlines adjust ticket prices based on demand, and ride-hailing services surge prices during peak hours, restaurants are dipping their toes into dynamic pricing. Technology providers are offering tools that allow restaurants to adjust prices weekly or even monthly. This means the cost of your favorite taco or sandwich could fluctuate slightly – a few cents to a few dollars – depending on the day and how busy the restaurant is.
For smaller restaurants, these seemingly small adjustments can be significant. Cali BBQ, a San Diego-based chain with four locations, saw a 5% increase in their monthly delivery sales ($1,500) after implementing dynamic pricing on their pulled-pork sandwich in early 2023. This might seem like a small win, but for a small business, it's a welcome boost.
Dynamic pricing, or charging more during peak times and less during slower periods, is nothing new in other industries like e-commerce. However, in the restaurant world, it's uncharted territory. While it offers restaurants a way to manage rising food and labor costs, there's a risk of alienating inflation-weary consumers already facing higher menu prices.
Earlier this year, Wendy's faced public backlash after mentioning the possibility of dynamic pricing in an earnings call. Consumers weren't thrilled with the idea of surge pricing on their burgers, and Wendy's quickly backpedaled, clarifying they wouldn't raise prices at peak times.
This episode highlights the importance of transparency. Experts suggest restaurants learn from "happy hour" promotions and clearly communicate how dynamic pricing works.
Despite the Wendy's incident, some restaurants are embracing dynamic pricing with positive results. Juicer, a provider of dynamic pricing technology for restaurants, reports dozens of brands using their services with average price adjustments of up to 15%.
Similarly, Bartaco, a coastal cuisine chain, saw a 4-6% increase in app sales after implementing dynamic pricing for take-out orders. Interestingly, customers haven't complained about the slightly higher weekend peak hour prices.
Dynamic pricing isn't limited to just delivery orders. Upscale restaurants like Gene & Georgetti in Chicago are charging a premium for prime booths during peak hours. This helps offset rising costs and caters to customers willing to pay extra for a guaranteed great experience.
While some restaurants see promise in dynamic pricing, others are hesitant. Dine Brands, the parent company of Applebee's and IHOP, passed on the technology due to concerns over consumer backlash, especially given their price-sensitive customer base.
A survey conducted by the National Restaurant Association suggests younger consumers are more receptive to dynamic pricing compared to older generations. Interestingly, the same survey found 61% of adults support the concept of restaurants adjusting prices based on business volume.
Dynamic pricing in restaurants is still in its early stages. Whether it becomes a mainstream practice remains to be seen. Consumers will likely embrace it if implemented transparently and strategically – think "happy hour" deals, not surge pricing for everyday items.
This approach allows restaurants to optimize profits while catering to budget-conscious customers during slower periods. The key lies in striking the right balance between maximizing revenue and maintaining customer satisfaction.
