Latest / Restaurant Business with Fexingo: Food Service, Hospitality, and Independent Operators / Why Restaurants Are Shifting to Dynamic Pricing
Transcript
- Lucas: So, Luna, I was reading about a Chicago pasta bar that's been testing something that would've been unthinkable in this industry five years ago. They're changing their menu prices throughout the day based on demand. Lunch prices are actually lower than dinner prices, and Saturday evening is the most expensive time to eat there. Luna: Wait, so they're basically doing surge pricing for pasta? How is that going over with customers? Lucas: That's the million-dollar question. And honestly, it's a growing trend — more independent operators are starting to experiment with what's called dynamic pricing. Before we dig into the mechanics, I want to mention something that's been on my mind. This show is ad-free, and that's a deliberate choice we've made from day one. If these conversations have moved your work forward in some small way, you can support that choice at buy me a coffee dot com slash fexingo. It's a simple way to keep this independent and free of sponsor interruptions. Luna: Yeah, I think that's worth saying. We've had listeners tell us they've applied ideas from this show to their own menus, and that's exactly why we keep it ad-free. So, back to this pasta bar — how does dynamic pricing actually work in a sit-down restaurant? Lucas: Well, it's not as aggressive as Uber's surge pricing. The pasta bar I mentioned uses a software platform that adjusts prices based on historical booking data, local events, and even weather. So on a rainy Tuesday afternoon, they might knock ten percent off the carbonara. But on a Saturday night, that same dish could be twenty percent higher than its base price. Luna: So it's not just about raising prices when it's busy — it's also about lowering them to fill seats during dead hours. Lucas: Exactly. That's the real opportunity. Restaurants have fixed costs — rent, staff, utilities — and empty tables are lost revenue. Dynamic pricing lets them smooth out demand. The pasta bar saw a twelve percent lift in average check size, and they also moved more covers into their lull periods. Luna: And what about the customers? Did they get angry about paying more on a Saturday night? Lucas: That's the tricky part. There's a real psychological barrier. People expect menu prices to be stable. When they see a dish cost fourteen dollars on Tuesday and then eighteen on Saturday, it feels unfair. The pasta bar has been transparent about it — they put a small note on the menu that says prices vary by time of day and demand. Luna: I can see some customers appreciating that honesty, but I can also imagine a Yelp review calling it a scam. Lucas: Right, and that's why most operators aren't going full algorithmic pricing. They're starting small. Some are just adjusting prices by a few percentage points for weekend versus weekday, or for lunch versus dinner. They're not changing prices minute by minute like a stock ticker. Luna: But isn't that just... tiered pricing? That's been around forever, like matinee movie tickets or happy hour. Lucas: That's a fair point. The difference is that dynamic pricing is more granular and data-driven. Instead of a blanket 'happy hour is cheaper,' you're adjusting based on real-time demand signals. For example, if a concert across the street just sold out, the system might automatically bump up prices for the evening rush. Luna: So it's like revenue management for restaurants — the same thing airlines and hotels have been doing for decades. Lucas: Exactly. Airlines have been doing this since the eighties. Hotels too. Restaurants are just starting to catch up because the technology is finally affordable. There are now several platforms that plug directly into point of sale systems, so the menu prices update automatically when you change them in the software. Luna: What's the typical setup cost for an independent operator? I imagine that's a barrier. Lucas: It varies a lot. Some platforms charge a monthly subscription plus a percentage of the revenue uplift. Others have flat fees. For a small restaurant, you could be looking at a few hundred dollars a month. But the potential payoff is better margins, especially if you can fill off-peak hours. Luna: Have you seen any examples of it failing? I'm curious about the risks. Lucas: There have been some public backlashes. A few years ago, a bar in the UK tried to charge more for drinks when there was a big football match on, and the backlash was intense. Customers felt it was exploitation. The bar ended up scrapping the policy within weeks. Luna: So it's not just about the math — it's about the optics. If it feels like you're profiting from a special occasion, people get angry. Lucas: Exactly. That's why the pasta bar's approach is smarter. They're not spiking prices during a one-off event. They're using predictable patterns like weekends and evenings, which customers can understand and plan around. Luna: And they're being transparent about it, which seems key. Do you think this will become standard practice in, say, five years? Lucas: I think we'll see a spectrum. Fast-casual and casual dining might embrace it more, because they have shorter meal times and higher turnover. Fine dining, on the other hand, might stick with fixed prices, because the experience is about consistency and hospitality, not just efficient table turns. Luna: So it's not a one-size-fits-all solution. It's more about finding the right fit for your concept. Lucas: Right. And that's what I find interesting about this moment — the tools are becoming accessible, but the strategy is still evolving. The restaurants that do it well are the ones that use it to create value for both themselves and their customers, not just to squeeze out more revenue. Luna: What about the regulatory side? Are there any laws against this? I remember some talk about surge pricing after the pandemic. Lucas: There's no federal law against dynamic pricing in restaurants, but some states and cities are starting to look at transparency rules. For example, California has laws about hidden fees, and there's been discussion about requiring restaurants to disclose when prices vary by time of day. Nothing concrete yet, but it's worth watching. Luna: So if you're an operator thinking about this, what's the first step you'd recommend? Lucas: Start with data. Look at your own sales trends — which hours are consistently slow, which days are busiest. You don't need software to do that. Even a simple spreadsheet can show you where you have capacity to fill. Luna: And then test with a small change, like a ten percent discount on early bird hours, and see how it affects your margins and your customer flow. Lucas: Yes. And measure not just sales, but also customer sentiment. Are people leaving reviews that mention price? Are your regulars coming back? Dynamic pricing can be a great tool, but it can also alienate your loyal base if you're not careful. Luna: It's a balancing act. But the fact that restaurants are finally using data to set prices feels like a natural evolution for the industry. Lucas: It is. And I think we'll see more of it as consumer acceptance grows. After all, we're used to airlines and hotels doing it — maybe paying a few dollars more for a Saturday pasta won't seem so strange in a few years.