Imagine planning your dinner based on not just what you want to eat, but also when it’s cheapest to do so. Welcome to the era of surge pricing in the restaurant industry, a concept that’s stirring the pot and serving up heated debates.

From well-known fast-food chains like Wendy’s to your neighborhood BBQ joint, establishments are trying out dynamic pricing, meaning the cost of your preferred dishes could vary. While the idea of boosting profits is tempting for restaurants, the question remains: Are customers ready to accept fluctuating prices?

This fresh strategy brings both advantages and hurdles, contributing to a broader dialogue about cost, accessibility, and eating patterns in our current economy.

Surge Pricing in Restaurants

The strategy of surge pricing, usually seen in the airline and ride-sharing sectors, has now entered the restaurant industry.

However, its introduction has not been without controversy. Wendy’s, a prominent fast-food brand, encountered backlash from the public after revealing plans to test dynamic pricing on their menu items. The thought of higher prices for a burger during the busy lunchtime sparked concern among consumers, particularly those already anxious about inflation and the high cost of living.

What Is Surge Pricing?

Surge pricing, also known as dynamic pricing, is a method where businesses adjust their prices in real-time or almost real-time based on current demand and other factors. This approach depends heavily on advanced algorithms and technology to analyze a large amount of data on how consumers behave, market demand, and other outside factors to set prices effectively.

Typical Uses:

  • Airlines alter ticket prices depending on demand, booking timing, and how many seats are available.
  • Hotels modify room rates based on how full they are, the season’s demand, and any special events happening.
  • Ride-hailing services raise their charges during high-demand times to match the need and availability of rides.

This technology has recently been adopted by the restaurant industry, letting them adjust menu prices based on several aspects like:

  • Demand: Charging more during busy dining hours and less during quieter times.
  • Staffing: Changing prices to cover labor costs at different times.
  • Sales Patterns: Using past sales data to adjust pricing for future sales optimally.

This change aims to assist restaurants in dealing with the ups and downs of demand and increasing operational costs, offering a chance to increase sales while being mindful of how price changes affect consumers.

Case Studies and Industry Adoption

The introduction of surge pricing in the restaurant industry marks a major change in how these businesses handle demand and costs.

A key example is Cali BBQ in San Diego, which started trying out dynamic pricing in early 2023. By changing their prices—for example, charging $18 for a pulled-pork sandwich during busy Saturday nights and $12 on quieter weekday afternoons—Cali BBQ saw a significant increase in their monthly delivery sales. This pricing strategy helped them earn an extra $1,500 on top of their regular $30,000 in sales, a big win for the small business. This success led them to use dynamic pricing for more items, like a $32 combo meal, showing the positive effects of this strategy on sales and managing customers.

This is all fantastic for the business, but it’s not so great for those of us who like pulled pork sandwiches and can’t, in good conscience, spend $18 for one.

Other restaurants, including big names like Dave & Buster’s and the coastal cuisine chain Bartaco, are also exploring dynamic pricing to varying degrees. Dave & Buster’s plans to use dynamic pricing models to better manage the flow of customers and make the most of busy times. Bartaco has been testing dynamic pricing for its app delivery orders, adjusting prices on taco packs by 5% to 10% during busy weekend times and offering discounts on slower weekday afternoons. This approach resulted in a 4% to 6% rise in monthly sales, with hardly any complaints from customers.

Tech providers like Juicer support these efforts by offering dynamic pricing solutions for restaurants. These services use data on demand trends to help restaurants adjust their prices, with changes of up to 15%.

Delivery platforms such as Uber Eats and reservation systems like Tock also support dynamic pricing, allowing restaurants to change prices based on immediate demand.

Challenges and Considerations for Restaurants

Using surge pricing in restaurants brings its own set of challenges and things to consider to make sure it works well and keeps customers happy. It’s very important to communicate clearly with customers about why prices might change at different times or days. Restaurants should be open about this, maybe comparing it to well-known ideas like happy hours or early bird deals to help customers get on board with the dynamic pricing model.

Finding the right balance between making more money and not pushing away customers who are careful with their spending is another big challenge. Dynamic pricing can increase sales when it’s busy, but it might put off diners who are watching their budget if it’s not handled with care. To lessen this risk, restaurants can:

  • Slowly introduce price changes so customers can get used to them without getting a shock.
  • Provide loyalty rewards or discounts for eating at less busy times, encouraging people to come in during these periods.
  • Use technology to offer special deals and promotions tailored to the likes and past choices of individual customers.

By putting these approaches into practice, restaurants can successfully use dynamic pricing and still keep a good relationship with their customers. This way, the positive effects of making more money won’t hurt customer loyalty and satisfaction.

The Bottom Line

Surge pricing is transforming the restaurant world, presenting an exciting chance for businesses to capitalize on fluctuating demand. This approach allows them to increase earnings during busy periods and attract customers with lower prices when it’s quieter. Originating from the airline and ride-sharing sectors, this dynamic pricing method comes with its own set of hurdles, notably in how to effectively communicate these price changes to customers without making them feel overcharged.

However, through careful execution—including clear communication, rewards for loyalty, and customized offers—restaurants can make the most of dynamic pricing. This strategy offers the potential to boost profits and keep customers satisfied at the same time.

As the restaurant industry ventures into these new territories, it’s uncertain whether customers will adjust to these price changes or prefer more stable pricing options.