Latest / Pricing Power Podcast with Fexingo: How Businesses Set Prices, Raise Margins, and Win Customers / Why Restaurants Price the Lobster at Market Rate
Transcript
- Lucas: You know that little line on a menu that just says 'market price'? No number, just a quiet invitation to ask your server. It's usually next to the lobster, sometimes the fish. And it's one of the most honest and most mysterious pricing moves in all of business. Luna: Honest and mysterious at the same time? I feel like you're going to have to unpack that. Lucas: So, on the one hand, it's the restaurant admitting they don't control the cost. The wholesale price of live lobster swings wildly depending on season, weather, and even what's happening in China, believe it or not. On the other hand, you have no idea what you're going to pay until you ask. That's the mystery. Luna: And before we dive into the deep end, a quick honest thing — a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many of these. It keeps the show free and ad-free, so if you've gotten something out of our pricing chats, that's the easiest way to keep us going. Lucas: Yeah, we don't run ads, and that's a choice we get to make because of that support. It means we can spend ten minutes on a topic like this without squeezing in a sponsor read. So, genuinely, thank you to everyone who does that. Luna: Alright, back to the lobster. So how does 'market price' actually work behind the scenes? Lucas: Well, let's start with the cost side. A restaurant that serves a lot of lobster is typically buying from a distributor who quotes a price per pound, and that price moves almost daily. In late summer, when traps are full, you might see softshell lobsters at eight or nine dollars a pound. By midwinter, when the catch drops and demand stays steady, that same pound can hit fifteen or more. Luna: So the restaurant might be paying nearly double for the same animal depending on the week. They can't just print a fixed price on the menu and eat that swing. Lucas: Right. If they locked in a price in summer and kept it through winter, they'd be losing money on every plate during the expensive months. So 'market price' is, in a way, a risk-management tool. It shifts the volatility from the restaurant's books onto the diner's tab. Luna: Now, is that fair to the customer? Or is it just a sneaky way to charge more? Lucas: It's a bit of both. The restaurant's cost is real, and they have to cover it. But the way they set that price is where the art comes in. Most places use a simple cost-plus formula: they take the wholesale price per pound, multiply by the weight of the lobster, then add a target margin, usually around 300 percent for seafood. Luna: Three hundred percent markup? So a lobster that costs the restaurant twenty dollars goes on the menu for sixty? Lucas: Roughly, yes. But here's the interesting part — 'market price' gives them room to be more aggressive. If the wholesale price drops, they might keep the menu price higher than the formula suggests, pocketing a fatter margin. When prices spike, they can adjust the price upward without having to reprint menus. Luna: So it's not just about covering costs — it's about maximizing margin when you can, and protecting yourself when you have to. Lucas: Exactly. And that flexibility is why you see 'market price' used for items with volatile costs, not just lobster. Scallops, crab, certain fish like halibut or wild salmon — they all trade on wholesale markets that move around a lot. It's a pricing strategy that comes straight from commodity trading. Luna: But don't restaurants worry that customers see 'market price' and think, 'oh, this is going to be crazy expensive'? Lucas: That's the classic fear. And it's why some restaurants have moved away from it. There was a backlash a few years back, especially in fine dining, where customers felt ambushed. Some places now print a range, like 'market price, roughly 45 to 55 dollars.' Others just list a fixed number and update their menus weekly. Luna: But some places still lean into the mystery. Why? Lucas: Because 'market price' can be a signal of freshness and exclusivity. It says, 'We buy what the ocean gives us today, and we're not going to price it like a frozen brick from a warehouse.' That has a premium connotation. It's the same reason high-end sushi places say 'omakase' instead of listing a set price — it implies you're getting something special that's worth whatever it costs. Luna: So it's a psychological pricing play as much as a cost calculator. Lucas: Exactly. And it's fascinating how different types of restaurants use it differently. A casual seafood shack might use 'market price' just to avoid reprinting menus, but they'll tell you the price up front when you ask. A white-tablecloth place might use it to create an 'ask me' moment — a chance for the server to upsell, to tell you about the day's catch, to make you feel like you're in on something. Luna: That's a smart move. It turns a potential objection into a conversation. But what about the customer who just wants a straight answer? Lucas: Well, that's the risk. If the server is well-trained, they'll say, 'Tonight the lobster is 62 dollars, and it comes with drawn butter and a side.' If they're not, they might mumble something and make you feel awkward. That's why some restaurants are now moving to 'market price' only for truly special items, like a whole fish for two, and fixed prices for everything else. Luna: So the trend is towards more transparency, but the old guard still likes the flex. Lucas: Right. And it's not just restaurants. Think about the broader economy — we see 'market pricing' everywhere. Airlines do it with surge pricing. Uber does it when there's a surge. Even hotels adjust room rates based on demand. The difference is, those industries are upfront about it because the price is displayed before you buy. Restaurants are unique because the price is hidden until you ask. Luna: Hidden pricing feels like a holdover from a different era, doesn't it? Before the internet, when you couldn't just look up what a lobster dinner should cost. Lucas: Totally. And it's an interesting tension — the digital age has made prices more transparent everywhere, but 'market price' survives because it's tied to something real: the cost of a live commodity. It's one of the few remaining examples of true dynamic pricing in a world that's moving towards fixed, posted prices. Luna: So what's the takeaway for a business owner listening? When should you use 'market price' in your own pricing? Lucas: Good question. The rule of thumb is: use it when your input costs genuinely fluctuate and your customers understand that. If you're a flower shop buying roses around Valentine's Day, you can say 'market price' and people get it. If you're a software company, pretending your costs are volatile when they're not is just going to annoy people. Luna: And the risk is that customers feel like they're being taken advantage of. I've been in restaurants where I asked the price and decided to order something else because it felt like a trap. Lucas: That's the danger. So if you're going to use it, you have to train your team to handle the conversation gracefully. Give a specific number, not a range. Show confidence. If you're embarrassed to say the price, that's a sign your margin is too high or your costs are out of control. Luna: So 'market price' is a tool, not a magic wand. It can protect you from volatility, but it can also scare away customers if you're not careful. Lucas: Exactly. And there's one more layer to this that I think is really interesting — the way 'market price' interacts with the menu as a whole. There's research in menu engineering that suggests the most expensive item on a menu often makes the second-most-expensive item look like a deal. So if the lobster is 'market price' and ends up being 75 dollars, suddenly the 48-dollar steak seems reasonable. It's a textbook anchoring effect. Luna: So the lobster isn't just a dish — it's a psychological anchor that shapes how you see everything else. Lucas: Right. And that's why you often see 'market price' on the most premium item, not the mid-range one. It serves a dual purpose: covering costs on a volatile ingredient, and making the fixed-price items feel more attractive. The lobster might not be the biggest margin generator, but it helps sell the rest of the menu. Luna: That's a clever trick. But is there a downside? I could see a customer walking in, seeing 'market price' on the lobster, and thinking the whole restaurant is overpriced. Lucas: Sure, that's possible. But the data — and I've seen some menu studies — suggests that in fine dining, only a small percentage of customers actually order the lobster. Most people order something else. So the anchor works without cannibalizing your food costs. The key is to not put 'market price' on too many items, or it just looks lazy. Luna: So one or two items max. Got it. What about the future? Will 'market price' ever go away? Lucas: I don't think so. As long as we have fresh seafood and volatile commodity markets, there will be a need for flexible pricing. But I think we'll see more restaurants adopting the 'range' approach or using QR codes to show real-time prices. The key is to balance transparency with the operational need to manage costs. Luna: And for the customer, what's the takeaway? Next time you see 'market price', what should you do? Lucas: Just ask. It's not a trap — it's an invitation to learn something about what you're eating. And if the price is higher than you expect, you can always order something else. The worst that happens is you get a second opinion on the menu. Luna: That's a nice way to look at it. So, next time I'm at a seafood joint, I'll channel my inner pricing nerd and ask the server for the breakdown. Lucas: And hopefully they'll give you a straight answer. If not, you know it's time to walk. But at its best, 'market price' is a sign that a restaurant is paying attention to the market, not just the menu. And in a world of fixed prices and hidden markups, that's a refreshing bit of honesty. Luna: Well said. And we should mention, this is part of our ongoing series on pricing power — if you've got a pricing question, send it our way. Lucas: Absolutely. We love digging into the details. Until next time, keep your eyes on the menu — and the price tag.