The hottest topic of discussion at industry conferences lately has been dynamic pricing for restaurants, a data-backed strategy that adjusts menu prices on demand. This strategy, also known as “surge pricing”, has been successful in other industries like ride-sharing and airlines, but its implementation in the restaurant industry is still up for fiery debate. Here are some significant pros and cons of dynamic pricing for restaurant operators to consider:
PROS
It Could Provide Consistency for Your Business
Many restaurants have had to adjust their operations in the face of rising rent, payroll, and supplies. Staying open during off-peak hours has become too expensive for many, and operating hours have been reduced across the industry. This directly impacts restaurant employers’ ability to provide consistent hours for employees and convenient service for guests. However, if restaurants could capitalize on their busy rushes, they would have a financial cushion for their slow hours. Incentivizing business during non-traditional hours could also level out stressful rush periods, creating a more consistent workload for employees.
It’s Relatively Simple with Data-Driven Tech
The recent surge in restaurants using digital channels to collect data and engage with consumers can make dynamic pricing a real possibility. Chains like Starbucks already utilize their digital loyalty program to push real-time specials. Even smaller restaurants can piggyback off the data collected through third-party ordering apps like Grubhub.
Existing Models are Already Accepted
Most consumers encounter surge pricing in their daily lives already. From airline prices to ride-hailing services, they understand that certain times of the day and year will be more expensive. Many consumers already adjust their spending habits to take advantage of better prices. With greater flexibility in most people’s workdays, diners seeking a better deal might not have a problem strategically adjusting when they visit or order from restaurants.
CONS
It Could Add Friction to Employee/Customer Interactions
If a regularly loyal customer comes in expecting the same price as yesterday, it is up to the young worker standing at the front to address their confusion. Even if a customer expects a sudden price increase, that does not mean they will accept it gracefully. A recent study of rideshare services found that when prices surge, so do customer complaints. We can almost certainly expect that employees will be forced to diffuse tense customer situations more frequently. As we saw during COVID, an uptick in irate customers is a recipe for a surge in turnover.
Implementation Could be Expensive
Even though new data technology could create a mostly automated dynamic pricing system, implementation and upkeep will come at a cost. Restaurants must have digital menu boards. For multi-unit operations, that cost alone could be huge. The data management required for dynamic pricing also comes with a price tag. Even when automated, systems need constant attention to remain competitive. This could be a huge headache for busy restaurant owners.
It Could Damage Brand Value
Whether a restaurant is fine dining or quick-serve, brand loyalty and trust are crucial. Spiking prices could betray the sense of value that diners seek from casual concepts. Price slashes could cheapen the perceived luxury that guests expect from fine-dining restaurants.
Strategic Restaurant Managers Are Essential
The jury is still out on whether dynamic pricing is a good idea for restaurants. However, we know that having the right management to lead your teams is always the best way to boost business for your restaurant. Our restaurant recruitment team has a vast database of restaurant management professionals who can bring quality service and motivate teams for your business. Contact our recruiters today to learn more.