VinePair podcast covers dynamic pricing for restaurants
In May 2021, Vinepair published a podcast discussing the idea of dynamic pricing in the restaurant industry. You can listen to that podcast here.
The Key Points:
- ... if you buy a last-minute plane ticket, you pay a premium. That’s dynamic pricing. If you’re willing to go to a matinee to see a blockbuster movie as opposed to Friday night at 9 p.m., you pay a cheaper price. That is dynamic pricing. If you happen to log on to Amazon at certain times, there’s less demand. Actually, Amazon is always doing dynamic pricing, which I think a lot of people don’t realize where they change by a few dollars. When there’s high demand, Amazon actually changes the price where they make it more expensive.
- It’s hard to keep asking people to come in to open a restaurant at 4 or 4:30 p.m., and to know that they’re not going to be all that busy until 6 or 7 p.m. That’s difficult on all ends. It’s hard to justify as an employer, and it’s boring if you are the service staff.
- ...as you said, if you want to fly to Hawaii during peak season, you pay more than if you want to fly off-peak. If you want to go to a movie, it’s more expensive to go peak nights, peak times at theaters than it is to go off-peak. We see surge pricing with rideshares and stuff like that. We understand that nowadays it’s much easier to tie pricing into demand and supply dynamically than it used to be able to. Yet, there is something about restaurants and how people experience them that does resist the idea.
- In a lot of ways, all other forms of entertainment are already set this way. That is how pricing works, so I don’t know. Do you hear other objections than it’s just unfair to people to ask them to pay more at peak times?
- If you are going home for Christmas, you pay for it. Right, if you want to travel in August when everyone else does or you want to go on spring break with your family during that one week when everyone else does. Look, I got to tell you, if you are ever able to travel in October, you should do it. It’s a f*cking dream. It is absolutely amazing to travel in October.
- First of all, the other thing that’s insane that we don’t talk about a lot, but we should is, we’ve already had dynamic pricing in the bar industry forever. It’s called happy hour. I’ve missed happy hour in New York every year that I’ve lived here because happy hour in New York is 5 to 7 p.m. for the most part. Or 4 to 6 p.m., depending on where you go. I’ve never had a job where I’ve gotten out earlier than 6:30 p.m. That means that I never made a happy hour. Guess what, that sucks for me but that’s the reason these bars are doing it because most New Yorkers are at their jobs until 6:30 or 7 p.m. and these bars are trying to get people in earlier. At 7 p.m., they’re going to be slammed with a lot of overworked New Yorkers who can’t wait to have a drink or two. Again, that’s the situation. But letting the bar or restaurant give some sort of carrot to get that extra revenue, I think is a really good thing.
- If the price is the price every single day, every single hour, the same price is the same price, then people don’t have incentives to ever go on days that are a little bit less convenient for them. Right now, the only thing that drives people to take inconvenient reservations is when you are at that hot restaurant. When you’re a hot restaurant, people are willing to come to you at 10:30 p.m. if that’s when they can get a table or Sunday night at 8:30 p.m. when people never usually go out to eat, but not everyone is a hot restaurant forever. Even in New York, there are restaurants that are hot, but they don’t stay hot for more than a year or two and then they’re still hot on the weekends. There are all the places everyone remembers. But on a Monday or Tuesday night, they are quieter. That is when I think they need help.
- ...the model that existed pre-pandemic, had a lot of problems with that and we’ve covered many of them on the podcast. One of them was that unless you were a hot-sh*t restaurant, you would have a lot of dead time in your service no matter what you tried to do. There just was going to be a time when you were not able to draw in guests. And dynamic pricing is a technique and a methodology that these restaurants could use.
- As you said, if there was a real financial reward, like 20 to 25 percent off, I do think a lot of people would go, “Wow, I don’t really want to eat at 5:30 p.m. but I’d like to save $100. That would be nice. Maybe it’s worth it for all of us to go out to eat early and then we’ll do something else. There are other activities we can do after dinner.”
- Adam, you have a sense of how broadly applicable this model could be?
I think it could be super applicable in cities. Actually, I think it could be applicable in most places. The other thing is that this model exists in parts of Arizona and south Florida ever since my grandparents moved down there. It’s called the early bird menu. I’m just correcting myself on my own as I’m talking that it’s not just a city thing where this could work. This clearly worked in West Palm Beach and Scottsdale for years. There’s a group of people that is willing to come in and eat earlier for savings.
- Yeah, exactly. It’s true that this might mean that if you are dead set on the primo restaurant, primo time slot, primo day, you might pay primo prices. Again, as we said at the top, that is true for almost everything else. I have yet to hear a convincing reason why a restaurant meal should be exempt from any of the rules of supply and demand that govern basically everything else we consume in the world.