Yield management is on the horizon for restaurants . . .

Applying the same variable pricing systems used by airlines and hotels may help some restaurants and bars to offer better service.

Lately, I’ve been asked by several journalists to forecast trends in this industry. Seeing into the future is always an inexact process, but when asked to do this I  metaphorically haul-out the crystal ball, give it a polish and call on my latent psychic powers. Professionally, I have to constantly look ahead, but the danger in publically revealing my opinions in print means I risk looking like a right idiot if I get it wrong. So be it . . . here I go again.

Hotels and airlines use yield management

For years the hotel and airline industry have used the variable pricing policy known as ‘yield management’ to maximise profitability. You are possibly familiar with it. This is where the pricing for airline tickets or hotel rooms are priced up or down according to the laws of supply and demand. If I want to fly somewhere at a time that is not popular, I get it at a cheaper price than if I go in a peak period. If I want a hotel room in a busy time I pay a premium.

Airlines and hotels have been using yield management pricing for years

The beauty of this process is that it reduces demand when demand normally exceeds supply, and it shifts demand to the quieter periods where demand would be normally low. It isn’t rocket science; it’s quite a logical way to even-out demand for a product or service.

Quite a few of my restaurant clients have a problem on Friday and Saturday nights where their restaurants are fully booked and despite two sittings they are knocking back requests for tables. Interestingly, these same restaurants have plenty of spare capacity earlier in the week, which they are constantly seeking to fill with promotions and other marketing activities.

What about desirable tables?

What is a view like this worth? Would you pay a surcharge for it?

I also have some other restaurant clients that have particular tables that are in demand, perhaps because of a view or a choice balcony position. Others have particular times when surrounding activities (like a NRL or AFL final) bring a heavy demand which far exceeds their ability to supply.

Beside restaurants, I am aware of popular bars that are so packed during peak times that you can’t get a drink without a hassle and an unreasonable wait. What’s the point of letting so many people in? If you can’t get a drink it defeats the purpose.

The idea is seen as radical

All of these businesses would benefit from using the principles of yield management to regulate demand and shift customers to other times or reduce the queues and waiting time, but most business owners in this industry seem to have a touching reluctance to introduce change for fear that it will destroy their business. Everyone waits for someone else to act in an innovative manner, then they all follow suit.

Look at some of the radical ideas that have now become commonplace. Go back 25 years and think about the first brave soul who decided to take the vegetables off the plate and sell them as side dishes for a higher customer average spend. I was around then; the prophets of doom and gloom came out in full force and argued that ‘You can’t do that, the customers won’t like it’. Now it’s almost universal.

What about the recent introduction of no bookings restaurants that make people queue? The naysayers hammered away at that one, but the public voted with their wallets and purses and now it’s relatively common.

Fear of change is preserving the status quo

If we don't change our direction, we end up where we're headed

Interestingly most of the radical changes we see in this industry are driven by economic imperative rather than artistic endeavour. The increase in prevalence of secondary cuts in dishes and the rise of no protein dishes are examples, but we’re running out of cheap secondary cuts and it takes a bit of skill and imagination to make premium dishes out of non-protein ingredients.

If you profit is declining you may have to accept radical change

The point is that there are still other ways to restore falling profit margins, but doing the same as you have always done will lead to an inevitable result. Why not have a loading (like you have on public holidays) for busy nights? Why not charge a premium for desirable tables; and why not reduce the crush by variable pricing?

It’s not that hard to organise.

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