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Is dynamic pricing a smart incremental revenue driver for restaurants? Or is it just a good way to make customers mad?
Both sides of the debate were represented at the National Restaurant Association Show in Chicago this weekend, where real-time, demand-based menu pricing was more than just a hot topic for some.
“It’s a scary topic,” said Patric Knapp, VP of operations for seven-unit Bobby’s Burgers by Bobby Flay, referencing the widespread backlash that hit Wendy’s earlier this year after it said it might test dynamic pricing.
Knapp said Bobby’s is steering clear of dynamic pricing because of how guests might react.
“It’s going to deter a customer who knows what your prices are,” he said. And it doesn’t take long for one disgruntled customer to go viral. “Social media is a different environment than it was 10 years ago,” Knapp said.
For 30-unit Mason’s Famous Lobster Rolls, which is aiming to make lobster accessible to the masses, dynamic pricing is not a good fit, said CMO Alefiya Dhilla.
“We’re not looking to be the fast food of lobster, but we are competitively priced,” she said.
With its lobster rolls selling for around $20, Mason’s has little wiggle room on price if it wants to maintain that reputation. “People are gonna say it’s too expensive,” said CEO and founder Dan Beck.
Research on consumer perceptions of dynamic pricing has had mixed results. According to a survey by the National Restaurant Association, 61% of people feel very or somewhat favorable toward it. But another survey, by tech supplier HungerRush, found that 81% would either change their dining hours or avoid a restaurant altogether if it used dynamic pricing.
Proponents of dynamic pricing argue that consumers already accept the practice when booking hotels, airplanes and Ubers, so why not at restaurants?
“Let’s not beat around the bush,” said Sterling Douglass, CEO of tech supplier Chowly, which offers a dynamic pricing tool. “Restaurants should be able to increase prices too.”
He pointed out that operators can use dynamic pricing as a scalpel rather than a club. For instance, they could adjust prices only on third-party delivery apps, giving customers an incentive to order directly. About 1,000 restaurants are using Chowly's dynamic pricing tool to do just that.
The focus on dynamic pricing comes as restaurants are looking to stretch every penny as costs rise.
And at least some restaurants that have taken the plunge have seen positive results. Three-unit Cali BBQ is testing dynamic pricing from Juicer at one restaurant to shift the price of its $15 pulled pork sandwich up or down by $3, depending on demand. The move is generating about $1,300 in extra revenue every month, said owner Shawn Walchef.
“The problem in the media is surge pricing,” which connotes drastic price increases when demand peaks, he said. “The reality is incremental pricing, up and down.”
So far, Cali BBQ hasn’t gotten any pushback from customers on its price fluctuations, he said.
Douglass understands why restaurants are hesitant to touch such a hot-button issue. But he said it’s only a matter of time before dynamic pricing becomes commonplace in the industry.
“It will happen because it needs to for the business to succeed,” he said.
As he spoke, he was standing feet from a life-size cardboard cutout of himself holding a sign that said “Wendy’s is woke, dynamic pricing is the future. Let’s debate.”
As of Sunday afternoon, no one had taken him up on it. “They’re all scared,” he said.
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