Posts Tagged ‘yield management’

Is Variable Menu Pricing the Next Big Move for Restaurants?

March 29, 2014

As restaurants continue to look for ways to cut costs and increase profit margins, the idea of introducing variable menu pricing as a form of yield management is gaining steam. The hotel and airline industries have been utilizing this form of yield management for years with great success. While it is clear how this system is beneficial from the business standpoint of more accurately managing costs, what many restaurant operators may not have considered is that the introduction of variable menu pricing could actually help drive more traffic to their restaurants as well.

Consumer Confidence Remains Fragile and Disposable Income Is Spread Thin

The economy has been steadily gaining strength from its major downturn a few years back, but consumer confidence and spending remains fragile, and nowhere near the level of decades past. In 2013, disposable personal income for the average American gained a mere 0.8 percent; an anemic rate, at best.

What’s more, that money is getting distributed over a wider range of consumer expenditures than it did in days of yore. It used to be that a restaurant operator’s biggest competition was other restaurant operators. However, these days, the bigger competition is in getting the consumer to spend that meager disposable income in the foodservice industry at all.

Variable Menu Pricing Represents a Way to Grab Traffic and Build Demand

According to a survey conducted by the National Restaurant Association (NRA), two out of every five consumers said they were not using restaurants as much as they would like to in their daily lifestyles. Interestingly, this number was highest among those with household incomes of $75,000 or more. Even more telling is the fact that 72% of consumers in another NRA study said that they’d dine out more often if menu prices were lower during off-peak times. Menu prices that vary on different days of the week, or times during the day, therefore represent a tangible method of building consumer demand, driving traffic and lowering operational costs—creating a win-win for everyone.

Younger Consumers are Primed and the Technology to Implement Variable Menu Pricing Is in Place

In today’s world, consumers under the age of 44 generally expect restaurants to utilize some form of technology in their establishments. Video menu boards and tablet table menus are already being employed in a number of restaurants around the country. It wouldn’t be a major leap to have real-time menu prices on your websites and social media forums as well.

Despite the fact that yield management is a reasonably sophisticated science, advances in technology over that last 10 years have made it quite capable of handling the demands of a variable menu pricing system. Not only is it easy to alter menu prices by time of day, week or season, it’s also easy to alter those prices according to current market rates. These variable alterations can thus be utilized to meet the demands of both the consumer and the business. Therefore, they represent an opportunity to both fine-tune your restaurant’s operational system, as well as build incremental demand with your patrons.