With food and labor costs on the rise and consumer spending on the decline, restaurants can either ride out the storm or adopt a progressive and increasingly popular tactic known as dynamic pricing. The model allows restaurants (or bustling UK pubs) to adjust the prices of their offerings based on a variety of factors – including time of day and day of week – to account for changing demand or costs associated with that demand.
The result? More profits.
Another driver of dynamic pricing? Digital ordering. Since 2014, ordering food online or with an app has grown 300% faster than dine-in ordering and now accounts for 40% of all restaurant sales. The ease of updating prices in an app or digital format make it hard for restaurants to say no to the practice.
To be fair, dynamic pricing is nothing new. Happy hour specials, market price menu items and children’s menu offers are all examples of dynamic pricing. What is new is how often some restaurants are adjusting their prices, with some changing weekly, some daily and some even hourly. That fluidity in response to the elasticity of consumer demand is what landed dynamic pricing on the 2023 version of the quench Food & Beverage Trend Report.
In addition to earning a spot in our trend report, the topic is also one that’s been raised on Forktales, a podcast from Pavone Group’s restaurant branding agency, Vigor. Earlier this year, we interviewed Carl Orsbourn, co-founder of JUICER, a company that applies machine learning algorithms to help restaurants optimize their digital menu pricing.
“The challenge of dynamic pricing as a term can be somewhat divisive,” said Orsbourn. “What we’re doing at JUICER is completely avoiding anything related to surge pricing. We’re talking about relatively small changes in prices that don’t cause a negative reaction. In many ways, the customer doesn’t even notice many of the price changes.”
For consumers who do notice and might cry foul, it’s important to note that dynamic pricing doesn’t just mean increasing prices when demand is high. The model also means lower prices to help drive traffic during off–peak periods. That’s a win for diners and restaurants.