It’s a concept other hospitality industries seem to have mastered but, as Susanna Nelson writes, dynamic pricing is still relatively new to the restaurant business.
Many restaurateurs know all too well the contrast between a buzzing weekend crowd and the relatively sedate pace of a weeknight. You might struggle to meet demand during those peak times; perhaps you even have queues snaking out your doors. Then comes the sluggish weekday lunch or dinner sitting: your restaurant is open so you are still paying rent, labour costs and other overheads but the crowds are not there to justify your expenditure.
“Profit margins in our industry can be as low as three to five per cent,” says Stevan Premutico, founder of Dimmi, the leading online restaurant booking business. “There was a need to help restaurants improve their efficiencies and therefore their profitability, which includes making sure they are filling as many tables as they can, as often as they can. Unless you’ve got some certainty around forward bookings, it just doesn’t make sense to open on quieter days.”
Dimmi, which has in recent years introduced technology to help reduce no shows and partnered with big review sites such as Trip Advisor, Good Food and Zomato to increase booking traffic, has conducted extensive research on the hospitality industry to create Dimmi Off Peak.
“We recently spent some time looking at the business models of two more mature industries—airlines and hotels—and observed the way these two industries had been using dynamic pricing for years,” explains Premutico. “And we recognised a really simple philosophy: if you’re happy to fly a bit earlier, you’ll get that flight slightly cheaper. So we decided to apply that concept to dining out.”
Dimmi Off Peak uses the concept of dynamic pricing (also sometimes referred to as yield management) as a means of incentivising customers to consider visiting your restaurant on the days when demand is slower.
“Most businesses can grow by controlling costs and increasing turnover,” says Erez Gordon, restaurant consultant and co-owner of Bishop Sessa in Sydney’s Surry Hills. “But the role of supply and demand is really interesting in restaurants because they can fall victim to the process of supply and demand. It is crucial to be aware of how to manipulate it in order to maximise your return.
“My golden rule is that when demand exceeds supply, the restaurateur gets to make up the rules—but when supply exceeds demand, the consumer gets to make up the rules. Some restaurateurs understand that, or at least one half of that; they know that they can call the shots on busy nights. The problem is that they often don’t reverse that and consider how they can incentivise customers—draw them away from competitors, or other options—at the times when supply exceeds demand.”
In addition to increasing your revenue, off-peak dining presents an opportunity to spread positive news about your brand, so when you devise your offers, it is important to try to get customers talking about their experience.
In this context, it is a good idea to pitch the offer to the customer in a way that reflects how you would like them to tell others about your restaurant. This means that the incentive or offer to potential customers is best framed as an ‘experiential opportunity’ rather than a discount.
“[Restaurants] can fall victim to the process of supply and demand. It is crucial to be aware of how to manipulate it in order to maximise your return.”—Erez Gordon, restaurant consultant and owner
“It’s about creating compelling offers—experiential opportunities that can only be accessed on certain nights of the week where there are softer numbers,” Gordon says.
“Offers like three for 55, which allow customers to have a three course meal at a restaurant for $55, are not about the price; they are about the opportunity for customers to have an entire experience at the restaurant which, in turn, creates ambassadors for your business.”
So why has it taken so long for the dynamic pricing philosophy that underpins the success of websites like lastminute and wotif to be applied to restaurant bookings?
“Our industry is fragmented, so we don’t have the scale and efficiencies of those industries,” says Premutico. “The vast majority of restaurateurs are sole operators, people who are passionate about creating a superb hospitality experience.”
But revenue management—a key discipline in other more centralised industries such as airlines and hotels—is not always the priority for restaurateurs.
Another issue is the technology solution, which arrived relatively recently. “This is not something you could do in the old world of restaurant bookings,” notes Premutico. “It’s only since the advent of online booking that you can publicise promotions and specials to a mass audience and get that information out there very quickly.
“So over the past couple of years we’ve been digitising the industry and moving restaurants from the traditional pen and paper diary to using our online reservation system, which really helps them to manage their tables better. It also helps them to build extensive CRM (customer relationship management) profiles on customers, which allows for better customer satisfaction because they can tailor the experience to the specific customer’s preferences.”
This is a huge overhaul of a diverse and organic system. To be able to drill down to the possibility of luring customers during quiet times was a logical step. Consumer choice information—demand—is driving supply in real time.
The fine-grained data that Dimmi can procure on dining trends can help you plan your opening times and offerings more effectively, says Premutico. “For example, one thing we’re seeing is a significant growth in demand for Sundays. We’re seeing more and more Australians wanting to eat out on Sundays and that’s really across brunch and lunch. This results in more restaurants being willing to open on Sundays to cater for that demand.”