Latest / Restaurant Business with Fexingo: Food Service, Hospitality, and Independent Operators / How Restaurants Are Using Dynamic Pricing Without Angering Customers
Transcript
- Lucas: There is a small Italian restaurant in Brooklyn, called Lilia — not the famous one in Williamsburg, a different one, newer, in Carroll Gardens. About eighteen months ago they started charging 15 percent less for pasta if you sat down between 5 and 6 PM. They also charge 10 percent more on Saturday nights after 8 PM. Same menu. Same kitchen. Same pasta. Luna: And they put the prices right on the menu? Or is it a surprise when the check comes? Lucas: It is printed right on the menu. There is a small note at the top that says 'our prices reflect real-time demand to keep the kitchen efficient and make room for everyone.' They also have a QR code that links to a one-paragraph explanation. Full transparency. And the thing is — their regulars didn't leave. Weekend reservations actually went up. Luna: That is the opposite of the Starbucks reaction. When Starbucks tested dynamic pricing in 2024 — I think it was in Chicago and a few other markets — customers noticed that a grande latte cost 20 cents more at 9 AM than at 11 AM. There were screenshots on Reddit within hours. The backlash was immediate. They rolled it back in under two weeks. Lucas: Right. And the difference is almost entirely about framing. Starbucks did not tell anyone. The price changes were buried in the point of sale system. Customers found out on their own, felt tricked, and reacted accordingly. Lilia put it front and center. They made it part of the service. 'We want to offer you a deal if you come early, and we need to cover the premium for the busy time.' That changes the emotional math. Luna: So is it purely a transparency issue? Or is there something about restaurant culture specifically that makes dynamic pricing harder than, say, Uber? Lucas: I think it is harder in restaurants because dining out is an emotional transaction, not a functional one. You do not Uber to the airport because you love the experience. You do it because you have to get to the terminal. But you go to dinner for the experience. If the experience feels nickel and dimed, you resent it. That is why airlines get away with it — nobody loves flying. Restaurants have a much smaller margin for perceived unfairness. Luna: So what is the actual scale of this? How many restaurants are doing it? Lucas: It is still small. I looked at data from a hospitality tech firm called SpotOn — they power about 40,000 restaurants in the US. As of March 2026, roughly 4 percent of their clients had any kind of time-based price variation in their menu system. But that percentage has tripled since 2023. The early adopters are mostly independent fine-casual places and a few regional chains. The big fast-food players have been more cautious — they have the most to lose from a PR disaster. Luna: Four percent is small, but tripling is a trend. What does the actual math look like for a restaurant? Does it move the needle? Lucas: For Lilia, it added about 6 percent to their weekly revenue, according to an interview the owner gave to a trade publication. But the bigger effect was on labor costs. When you smooth out demand — get people to come at 5 instead of 8 — you need fewer cooks and servers at peak. They cut their weekend kitchen staff by one person and saved about 40 thousand dollars a year. The pricing change itself was almost secondary. The real win was operational. Luna: So it is less about charging more and more about shifting when people come. That feels more defensible. But does it work for every type of restaurant? I cannot imagine a diner in the Midwest doing this. Lucas: It depends on the customer base. A diner with a loyal breakfast crowd that comes the same time every day — that is a bad fit. You risk alienating your core. But a restaurant that has a known dead hour between lunch and dinner? That is perfect. A wine bar that is empty on Tuesday but packed on Friday? Perfect. The key is identifying where demand is elastic. Do people have flexibility? If yes, you can nudge them. If they are coming for a birthday and the reservation is at 7 PM whether you like it or not, you are not going to move them with a 10 percent discount. Luna: You mentioned the technology. What does a restaurant actually need to do this? Lucas: You need a point of sale system that supports variable pricing by time and day. Most modern systems — Toast, Square, SpotOn — have that capability built in now. The harder part is the menu display. If you have paper menus, you are printing multiple versions or writing prices in chalk. That is a hassle. Many of the places doing this have switched to digital menu boards — even if it is just a tablet on the table. That way the price updates automatically when the time window changes. Luna: The Brooklyn place I go to, they just have a small tent card that says 'Early Bird Menu available until 6 PM' with a separate list. That seems lower-tech but still works. Lucas: Absolutely. The tent card approach is actually smart because it creates a visual cue. The customer sees a separate card, they know they are getting a deal. It feels like a special, not a system. That is good hospitality. The risk with digital boards is that if the price changes too often, it feels like the stock ticker. That can be disorienting. You want the pricing to be predictable enough that regulars can plan around it. Luna: Let us talk about the backlash risk. What are the biggest mistakes restaurants make when they try this? Lucas: The biggest mistake is changing prices too frequently. If a customer comes in at 6:30 and pays one price, then comes at 6:45 next week and pays a different price for the same item, that feels random. You need clear, stable windows. Lilia uses two windows: early bird 5 to 6, and peak after 8. That is it. The second mistake is applying it to everything. Some items are anchors — the steak, the signature dish. If you fluctuate the price on your most famous item, people notice. Lilia only adjusts about half the menu. The classics stay fixed. Luna: So the pasta changes, but the carbonara — which is their famous dish — stays the same. That makes sense. What about the psychological pricing piece? Is there a right way to frame a discount versus a surcharge? Lucas: There is a lot of research on this. Discounts feel good. Surcharges feel bad. So the smart operators frame everything as a discount from a 'regular' price, even if that regular price is rarely charged. Instead of saying 'Saturday night pasta is 22 dollars,' they say 'pasta is 20 dollars Sunday through Thursday, 22 dollars Friday and Saturday.' The customer sees the lower price as the baseline and the weekend as a premium. But if you list the weekend price as the standard and offer a weekday discount, it feels like a gift. The framing really matters. Luna: Do you think the industry is heading toward widespread adoption? Or will it remain a niche strategy? Lucas: I think it will grow, but slowly. The biggest barrier is not technology or customer acceptance — it is operator mindset. Most independent restaurateurs are not thinking about yield management. They are thinking about food cost and rent and staffing. Dynamic pricing requires a level of data comfort and willingness to experiment that a lot of small operators do not have. But the chains are watching. If one of the big fast-casual players — say, Sweetgreen or Chipotle — rolls this out nationally and it works, you will see a flood of imitators. Luna: And if it backfires for a chain, it could set the whole idea back by years. So a lot is riding on whoever goes next. Lucas: Exactly. That is why the independent experiments are so important. They are the test kitchen. If a small place in Brooklyn can make it work with a tent card and a QR code, the chains have a blueprint. If they all fail, the chains will stay away. Right now the data is promising, but it is early. Luna: If today's episode was useful to you and you want to keep it ad-free, buy me a coffee dot com slash fexingo helps. That is literally what funds these conversations. Lucas: Yeah, it is a small thing that makes a big difference. And it keeps us independent. Luna: So back to the pricing question — do you see any scenario where dynamic pricing becomes the norm, like surge pricing for Uber? Lucas: I do not think it will ever be that aggressive. Restaurants are not rides. But I can imagine a future where most restaurants have three or four price tiers — lunch, early dinner, peak dinner, late night. And customers just know that Tuesday at 5 PM is the cheapest way to eat. That is already how happy hour works. This is essentially happy hour logic applied to the whole menu, but with more granularity and technology. It is not a revolution. It is an evolution of something restaurants have done forever. Luna: The happy hour comparison is a good one. We are used to discounted drinks at certain times. Why should food be any different? Lucas: Right. And happy hour actually trains customers to expect time-based pricing. The leap from 'beer is two dollars until 7 PM' to 'pasta is 15 percent off until 6 PM' is not that big. The difference is that happy hour is usually a separate menu with smaller portions or limited items. Full-menu dynamic pricing is a bigger shift. But the concept is the same: use price to manage demand. Luna: One thing I have noticed is that some restaurants are using loyalty programs to personalize the pricing. You get a 'regular' price if you are a member, and a higher price for non-members. Is that the next step? Lucas: That is happening, but it is even more controversial. A restaurant in San Francisco called Saison — a three-Michelin-star place — had a system where regulars got a 10 percent discount automatically, and new guests paid full price. It was not well-received when it came out. Diners felt like they were being penalized for being new. The restaurant actually ended up reframing it as a loyalty reward rather than a non-member penalty, and that worked better. But it shows how sensitive the pricing perception is. Luna: So the golden rule seems to be: if you are going to vary prices, make sure the customer knows why and feels like they are getting a deal, not being taken advantage of. Lucas: That is the whole thing. The technology is easy. The psychology is hard. And the margin for error is tiny. A restaurant that loses trust on pricing will not get it back. But the ones that do it well — like Lilia — prove it is possible. The question is whether the industry can learn from those examples before making the same mistakes the airlines and hotels made. Luna: And whether customers will eventually just accept it as normal. I think they will, if it is done with transparency. People are rational. They understand supply and demand. They just do not like feeling stupid. Lucas: Exactly. Nobody wants to be the person who paid more for the same thing because they did not know. So tell them. Put it on the menu. Put it on the website. Make it part of the conversation. That is the difference between a pricing strategy that works and one that backfires. And for a small restaurant, that difference is everything. Luna: Any final thoughts on what you are watching for next? Lucas: I am watching the fast-casual chains. If one of them announces a national dynamic pricing test in the next twelve months, that is the signal that this has moved from experiment to trend. Until then, the independents are the ones to follow. And honestly, a lot of them are doing interesting things that the big guys cannot do because they are too cautious. So it is a good time to be paying attention.