VinePair Podcast: Can Dynamic Pricing Benefit Restaurants?
Prior to the Covid-19 pandemic, only a very small percentage of restaurants in America had dabbled in dynamic pricing — pricing that changes depending on the time or day of the week. Now, the model has become more widespread throughout the travel and leisure industry. As the pandemic has forced restaurants to reevaluate almost every element of their business, might now be the right time to experiment with this model?
That’s what Adam Teeter and Zach Geballe discuss on this week’s “VinePair Podcast,” prompted by a listener question: Should restaurants embrace dynamic pricing? If so, how would that look? The two discuss how the idea already has gained some traction in the industry in the form of happy hours as well as early-bird and late-night specials, but note how new technology and a need to rethink things from the ground up might prove to be a powerful incentive for restaurants post-pandemic.
Or Check out the Conversation Here
Adam Teeter: From Brooklyn, N.Y., I’m Adam Teeter.
Zach Geballe: And in Seattle, Wash., I’m Zach Geballe.
A: And this is the VinePair Podcast. Zach, before I ask you what you’ve been drinking, I have some pretty exciting news. For the foreseeable future, that is going to be the last time with that intro.
Z: Oh, I know.
A: Oh, you already know. You were supposed to say “Why?” but I did tell you already.
Z: Okay, so let’s start again… why, Adam??
A: VinePair’s executive editor Joanna Sciarrino is joining the podcast as our third co-host. Joanna’s awesome! She joined VinePair a few months ago. She previously was the executive editor at Food52, for those of you listening. Prior to that, she was helping to run Lucky Peach as their managing editor, so she’s super awesome. I love her background. She has much more of a food background than a drinks background, which is why she said, “I’m super intimidated to come on and talk with you and Zach.” I said, “Please do not be, we are very nice. We only make fun of Zach on this podcast.”
Z: That’s right and she can do that just as well as you can. Maybe better?
A: Exactly. I’m super excited to have her, as you know, with her background in food, to add to the conversations that we have weekly about drinks. Anyways, before we jump into today’s topic, which would have been fun to have her here based on her background in food, but what have you been up to, man? What have you been drinking and getting yourself into?
Z: Oh, well, it’s been a week. We did this whole Mother’s Day thing, although I had this whole elaborate plan. My mom is a Francophile and so she loves everything in France. She and my step dad lived in France for a while and my mom has been there a bunch of times and all that. And I had this whole idea where I was going to make one of my mom’s favorite French cocktails. It’s basically a Kir Royale, so it has sparkling wine and crème de cassis. So I had crème de cassis and obviously the sparkling wine. My wife also really likes those, so it was going to be perfect. And then everyone sat down and I said, “Great, who wants a Kir Royale?” It was crickets. My mom said, “Oh, I think I’m just going to have coffee.” I thought, “Oh, great. I had this cool idea planned.” It was fine, though. We had a lovely time, and every occasion needs drinks, but I do love that cocktail. It’s actually one of the very first drinks I made when I was working at my first serving job or my first shift. Someone asked me for it. They asked, “Can you guys make a Kir Royale?” And I thought, “Sure.” In my head, I have no idea what that is. I’m going to go ask the bartender, and I hope they don’t yell at me. I quickly learned back then.
A: Sweet, dude, that sounds like it would have been delicious had you got to make them.
Z: Oh, I should add that I had one the next day because now I wanted one. And I made it for myself.
A: I have a question before we jump into what I’ve been drinking, and this is a conversation I had earlier on another podcast that I was invited to be on. The host asked me this question, and you mentioned it in terms of being the server when someone orders something from you that you weren’t aware of. This host brought up that his sister was really into gin, and he brought her a bottle of gin for her birthday a few years ago. She doesn’t live in the New York area, she lives somewhere outside Chicago or something like that. He said, “Oh, this is perfect for Negronis.” She said, “What’s a Negroni?” Then, they went out drinking and the bartender didn’t know what a Negroni was, either. I mentioned my own story when I visit home and go to nice restaurants with my parents. There are definitely drinks that I feel like everyone in New York is drinking that I’ve ordered and the bartender doesn’t know what I’m talking about. The question was, “How do you handle that without being a snob?” How do you do that? I said, “Try to be as friendly as possible.” It is interesting. I wonder, how do you do that? Obviously, we have different drinking experiences depending on where we live. Then, we travel somewhere else and we sometimes expect those same drink experiences, and they’re not there. I think there’s a lot of us who really don’t want to come off as assholes. We don’t want to be thought of as the snob saying, “I’m from the city and I’m telling you what we’re drinking there.” But also, we just want the drink that we’re used to drinking and sometimes it’s just a force of habit. That’s what you order. So any tips?
Z: It’s funny, this is one of those things that has definitely evolved over the time that I’ve been in the restaurant industry. In my first bartending experience we had books behind the bar, a number of different writers’ cocktail books. People would come up all the time and order a Colt 45 cocktail that was just not in style at the time. I would have to go and look that up. I still don’t remember what the hell was in it. There’s a lot of those ‘80s-era cocktails. For example, what exactly is Sex on the Beach? I had that order before, but I definitely have to go look it up. Now, I would probably just look it up on my phone. One tip is the staff could say, “Oh, sure. Let me go check on that.” If it turns out they don’t have Campari, and I would say 90 percent of bars have a bottle of Campari somewhere. It might be dusty, the lid might be glued shut from the residual sugar, but it’s in there somewhere. In general, the best way to do it is to come off and say, “Oh, I think it’s like this” even if you know exactly how it’s going to be made. If it’s fine, then you can say, “I think our bartender, or I think I can make that.” If they seem game, if they say, “Oh, cool, I’ve never heard of that, maybe I’ll make it an extra and try it myself.” I’ve definitely done that as a bartender, too. Then, if they say, “I don’t know, maybe…”, then that might be the time to just have something else.
A: That is interesting. I support this.
Z: So what have you been drinking?
A: There are two things I want to tell you about. One is that I had another orange wine this weekend.
Z: No photos, huh? I didn’t see it on social media.
A: Yeah, Trebbiano is really cool, delicious. The producer is by the name of RAÍNA Trebbiano Spoletino. Again, I had it at my favorite restaurant in Brooklyn right now, LaRina, which is in Fort Greene. They make all their pasta fresh. Everyone who works there is Italian. It’s amazing and I went there on Sunday. Another cool thing I did this weekend was I got to meet with this former chef named Patrick Miller, who used to run the kitchen at a really great restaurant, also in Brooklyn, called Rucola. He left, as a chef, about a year ago. As Covid was hitting, he started this amazing amari brand called Faccia Brutto.
Z: That was very good, by the way. That was good Italian.
A: It’s interesting because he’s bringing a chef’s perspective to making amaro. We’re working on the story about this right now because there’s a lot of things that are really interesting about it. Amaro is a very interesting beverage in that it really is a recipe. The perspective he brings as a chef is much more different than a beverage professional or a bartender. What I mean by that is that amaro recipes don’t scale like drinks recipes in which you can double, triple, quadruple and the proportions stay the same and the drink stays the same. Amaro recipes, as he’s explained, are much more like pastry recipes. For anyone that is a baker, as you scale pastry, you actually have to start messing with the proportions because ultimately, if you take certain cakes and you quadruple the sugar, they actually come out way sweeter than the cake was intended to. I didn’t really realize that, but then I was talking to Tim on staff, who was also a former executive chef. He said, “Oh, that’s really true.” As a chef, pastry recipes do not traditionally scale by doubling, quadrupling, etc. If you have been doing that at home, maybe we’ve all been doing it wrong, guys. Anyways, he makes these incredible amaros that are inspired by amari from Italy. Also, what’s cool about what he’s doing is he’s not making a Brooklyn version of amaro. He is making really amazing versions of amari styles from Italy. He makes a really amazing Sicilian style. He makes a Braulio style that’s delicious. He’s making a Fernet that’s really good. He makes an aperitivo and all of them are with all organic ingredients to make a high-quality-based spirit. Also, a lot less sugar, which for someone who’s into amaro, I try to forget about how much sugar is in them, but you realize there is a lot of sugar. He does it with less, and he’s doing some really, really dope stuff. He just got picked up by a great distributor. I think you can find him in a lot of states now across the country. It’s called Faccia Brutto and the stuff is really, really dope. The bottle is great and it’s really well priced, too. For a craft amari, I was pretty impressed because he’s at least 50 percent less than a lot of the stuff that’s getting made in Brooklyn right now.
Z: Those Prospect Park ones don’t come cheap.
A: They do not come cheap. Anyway, so speaking of money, we had a really interesting conversation today that was suggested by a listener. This listener was Paul Brady. Paul is a friend of the podcast. Paul is a former sommelier at restaurants in New York, such as Hearth, Terroir, etc. He is now up in the Hudson Valley working on opening his own wine bar and wine shop, mostly devoted to New York wines and spirits and we’ll probably have him on at some point. He emailed in and posed this question, which I thought was really interesting: Is dynamic pricing the potential solution for helping restaurants make a comeback? For those of you that aren’t familiar with dynamic pricing, I think it’s a really interesting topic. I’m super pumped to chat about it. We experience dynamic pricing all the time, but we just don’t notice it. Dynamic pricing is pricing that changes depending on the time of day or when you want to do something. For example, if you buy a last-minute plane ticket, you pay a premium. That’s dynamic pricing. If you’re willing to go to a matinee to see a blockbuster movie as opposed to Friday night at 9 p.m., you pay a cheaper price. That is dynamic pricing. If you happen to log on to Amazon at certain times, there’s less demand. Actually, Amazon is always doing dynamic pricing, which I think a lot of people don’t realize where they change by a few dollars. When there’s high demand, Amazon actually changes the price where they make it more expensive. It’s interesting because Paul said every time he’s ever brought up the idea of dynamic pricing in restaurants, meaning if you take the table at 5 p.m. on a Monday night, you get a menu that’s 25 percent cheaper than if you take the table at 8:30 p.m. on a Friday. He’s met with all this backlash like, “How dare you talk about that. The price should be the same across the board no matter what.” Now, the rationale for thinking this way — and there’s a few other people thinking about this as well — is how do we get butts in seats on slower days? How do you reward people willing to take those earlier reservations? Everyone is battling for Thursday, Friday, Saturday night, and a very key time within that. At least in New York it is usually 7 to 9:30 p.m. where if you get a reservation in that time zone, that’s a great reservation. Anything after 9:30 p.m., you’re dining pretty late, and before 7 p.m. you got the early bird, so you know you’re going to get pushed. Is this a solution that says to people that if you take the earlier table and you’re getting pushed, you’re willing to get pushed because you pay 25 percent less? If you’re willing to dine on a Tuesday when the restaurant has staff sitting around doing nothing, you get rewarded for 20 percent less. I think it’s really interesting to consider. I’m curious, as someone who’s worked in restaurants, what you think about this idea.
Z: Well, I think it’s a fascinating topic. You mentioned Paul’s email — so thank you, Paul. We really appreciate it. It’s always great to hear from our listeners and get suggestions because they help us frame the show. I think that it’s been the bane of all restaurant employees one way or another, where you have one of two things happen. As you described, the nights where you’re sitting around doing nothing or you’re waiting for the one push that starts at 6:30 p.m. and by 8:30 p.m. all the tables that are going to come in are staffed. That is hard to staff for. It’s hard to keep asking people to come in to open a restaurant at 4 or 4:30 p.m., and to know that they’re not going to be all that busy until 6 or 7 p.m. That’s difficult on all ends. It’s hard to justify as an employer, and it’s boring if you are the service staff. I think that one of the things that have really changed over the last few years is that technologically doing this on a far more flexible level is possible. Restaurants in one way or another have done this forever. We all know restaurants that have different specials on different days of the week. The special on a Monday or Tuesday is probably a better deal than it is on a Friday or Saturday. That was a very low-fi way of doing dynamic pricing. The ability to have an algorithmic way to determine this based on demand or parameters that are programmed in to make it so that every possibility has its own appropriate price structure. I think the part that gets met with pushback is not the part that you’ve described, which is, hey, let’s charge less on these off nights. It’s the obvious corresponding part, which is let’s charge more for a table that sits down at 7:30 p.m. on a Saturday night. That is the part that I think rankles people. Even though, as you said, if you want to fly to Hawaii during peak season, you pay more than if you want to fly off-peak. If you want to go to a movie, it’s more expensive to go peak nights, peak times at theaters than it is to go off-peak. We see surge pricing with rideshares and stuff like that. We understand that nowadays it’s much easier to tie pricing into demand and supply dynamically than it used to be able to. Yet, there is something about restaurants and how people experience them that does resist the idea. People sometimes think of it as, “Well, I don’t want to go to the grocery store and find that they’re charging me more for a head of lettuce at whatever peak grocery store time is versus that off-peak time.” I think it goes back to this idea that restaurants are not merely places that provide sustenance. Sure, I don’t know that IHOP is going to add in dynamic pricing, or maybe they will. I don’t know. They probably could. Could they have the data for it? Sure. But if you go to a relatively nice restaurant, the place that we’re talking about doing this for, you are going for a lot of things and it is not, repeat, not exclusively just to be fed. If that is your purpose, then I think you’re making a bad choice, because there’s a lot else that you’re paying for. If we think of food and restaurants as entertainment, I think that is the right way to think about them. In a lot of ways, all other forms of entertainment are already set this way. That is how pricing works, so I don’t know. Do you hear other objections than it’s just unfair to people to ask them to pay more at peak times? That would be the big objection that I would typically hear.
A: The response that I have is, what if what they pay at peak times is what is normal? Again, I think the way it should be structured is there are the normal prices, and there are the discounts. The other pushback that I think people give is, “Well, that is the time I want to go. That is the time I’m able to go.” To that I say, “Well, that’s the same way the travel industry works, right?” There are a lot of us that can only travel certain months of the year because of other prior commitments, whether it’s work, families, whatever.
Z: If you are going home for Christmas, you pay for it.
A: Right, if you want to travel in August when everyone else does or you want to go on spring break with your family during that one week when everyone else does. Look, I got to tell you, if you are ever able to travel in October, you should do it. It’s a f*cking dream. It is absolutely amazing to travel in October.
Z: Europe in the late fall is fantastic.
A: It is amazing. There are no tourists. It’s an incredible experience. Look, if that means you have a family and you got to pull your kids out of school, you got to pull them out of school. There are tradeoffs. Again, maybe that’s a better education in some senses. They can make up the work. If you’re a parent that’s able to figure out how to get a babysitter on a Tuesday or Wednesday night as opposed to a Friday night, then you should be rewarded for that. At some point, maybe the babysitter is actually more affordable on a Tuesday or Wednesday. I don’t know, I don’t have kids, but potentially that’s true, right? Maybe you can get a better rate because you’re also not in a bidding war with other parents trying to book the same babysitter for the same Friday or Saturday night. I think that’s the biggest pushback I hear where it is not just that it’s more expensive, but that this isn’t fair because this is the time when I can go. But that’s not anyone else’s problem. First of all, the other thing that’s insane that we don’t talk about a lot, but we should is, we’ve already had dynamic pricing in the bar industry forever. It’s called happy hour. I’ve missed happy hour in New York every year that I’ve lived here because happy hour in New York is 5 to 7 p.m. for the most part. Or 4 to 6 p.m., depending on where you go. I’ve never had a job where I’ve gotten out earlier than 6:30 p.m. That means that I never made a happy hour. Guess what, that sucks for me but that’s the reason these bars are doing it because most New Yorkers are at their jobs until 6:30 or 7 p.m. and these bars are trying to get people in earlier. At 7 p.m., they’re going to be slammed with a lot of overworked New Yorkers who can’t wait to have a drink or two. Again, that’s the situation. But letting the bar or restaurant give some sort of carrot to get that extra revenue, I think is a really good thing. Giving them these ways to get people in. Again, some restaurants have done it. I think it was the 2008 recession and this restaurant used to do late-night pricing. I forget where it was now, but if your table was after 9:30 or 10 p.m., it was a shorter menu, but it was a nicer restaurant, and they wanted to do one more turn. I think they did really well and they were able to come out of the recession because of that. Again, there’s resistance to “Why should we do that?” Look, if you are a bar or restaurant owner, there are a lot of benefits to it as long as it’s legal in your state. That’s also a problem. There’s a lot of states that outlawed happy hour, which I don’t understand for the life of me. If you can play with these financial models, it helps, because you have to do something in order to increase demand. That’s how economics works. If the price is the price every single day, every single hour, the same price is the same price, then people don’t have incentives to ever go on days that are a little bit less convenient for them. Right now, the only thing that drives people to take inconvenient reservations is when you are at that hot restaurant. When you’re a hot restaurant, people are willing to come to you at 10:30 p.m. if that’s when they can get a table or Sunday night at 8:30 p.m. when people never usually go out to eat, but not everyone is a hot restaurant forever. Even in New York, there are restaurants that are hot, but they don’t stay hot for more than a year or two and then they’re still hot on the weekends. There are all the places everyone remembers. But on a Monday or Tuesday night, they are quieter. That is when I think they need help. The other thing I think it’s interesting that Paul brought up — and I’m curious to what you think — is there a way to reward people who pick up last-minute cancelations? So this is a model that this app Tock is playing with, which is a restaurant reservation platform. Basically, if you’re Gramercy Tavern and you had a tasting menu reservation on a Tuesday for 9:30 p.m. and at 7:30 or 8 p.m., that person cancels, there’s a big likelihood you’re not going to refill that. You’re not going to rebook that reservation. As we said, it’s a slow night but what if you offer that reservation on the platform for 25 percent percent less? 30 percent less. Now, you’re incentivizing some people to go and get a discounted tasting menu. I think that’s also super interesting, because why not?
Z: Well, it connects back to what you talked about before, which is last-minute travel. You pay a lot of money, but sometimes you get incredible deals on airlines, hotels, etc. If there’s a seat they can fill for maybe less than they would have hoped. but they’re flying there, so they might as well have a paid passenger in that seat. There’s going to be a subset of diners who can be that flexible, who can say, you know, “Hey, we want to go out tonight, but we’re going to wait until 7 o’clock to see what opens up and what’s the best deal for us. Then, we’ll go for it.” Again, we have to recognize — and you started this out in the correct framing — which is the model that existed pre-pandemic, had a lot of problems with that and we’ve covered many of them on the podcast. One of them was that unless you were a hot-sh*t restaurant, you would have a lot of dead time in your service no matter what you tried to do. There just was going to be a time when you were not able to draw in guests. And dynamic pricing is a technique and a methodology that these restaurants could use. Obviously, not every restaurant is going to do it. In the end, you run up against one of the other pre-pandemic problems that was true, which is also just oversupply. You may find that dynamic pricing works, but if you don’t have more people who are interested in dining at 5 p.m. for whatever reason, you are fighting over the same small pool and now you’ve lowered your prices. That said, I don’t think that’s going to be a huge problem. Part of it is we don’t know if people are incentivized to dine early, and if they are, will they do it in larger numbers because it actually has a meaningful effect on their check at the end of the night? I think most people go, “well, I don’t want to eat at 5 unless I’m going to a show at 7:00 p.m. or something else.” Basically, they want to eat at a normal dinner time because that’s the centerpiece of their evening. As you said, if there was a real financial reward, like 20 to 25 percent off, I do think a lot of people would go, “Wow, I don’t really want to eat at 5:30 p.m. but I’d like to save $100. That would be nice. Maybe it’s worth it for all of us to go out to eat early and then we’ll do something else. There are other activities we can do after dinner.” The other piece of this that I think is complicated but also tied in is with restaurants that have tasting menus. For them, that is an even bigger incentive to fill the seat, but also a real cost potentially if someone cancels at the last minute because you’re not going to get people walking into a tasting-menu-only or a restaurant that focuses on a tasting menu. People think of those places as you have to make reservations because there aren’t walk-ins. I wonder how the dynamic model works for places that are a little more casual, and if there’s a way for them to capitalize on this. And maybe it is the matter of a platform that pushes out or makes this information available, I don’t know. I’m wondering if in your head, Adam, you have a sense of how broadly applicable this model could be?
A: I think it could be super applicable in cities. Actually, I think it could be applicable in most places. The other thing is that this model exists in parts of Arizona and south Florida ever since my grandparents moved down there. It’s called the early bird menu. I’m just correcting myself on my own as I’m talking that it’s not just a city thing where this could work. This clearly worked in West Palm Beach and Scottsdale for years. There’s a group of people that is willing to come in and eat earlier for savings. Also, as we get older, our bedtimes become earlier, so they’re willing to come in earlier. I used to hate the early bird menu, man. When I was in high school, I used to say, “Why are we going to this restaurant so early?” My mom would say, “That’s when your grandparents want to eat.” But you know what? We would leave the restaurant and it would be packed with people my parents’ age and my age at the time. I think that was also a really beneficial thing for the restaurants. The restaurants made a killing that way. It’s interesting that we’ve never done that in other places but we should. I think it’s applicable everywhere. The theater menu exists, but that’s a little bit different. Yet, these are things that we really need to continue to think about as we evolve as a restaurant culture — and especially as we’re coming out of Covid, this is the perfect opportunity for us to play with models and create something that works to get more people in the door and then also works for customers.
Z: Yeah, exactly. It’s true that this might mean that if you are dead set on the primo restaurant, primo time slot, primo day, you might pay primo prices. Again, as we said at the top, that is true for almost everything else. I have yet to hear a convincing reason why a restaurant meal should be exempt from any of the rules of supply and demand that govern basically everything else we consume in the world.
A: I completely agree. Zach, this has been a super-interesting conversation. If you’re a listener out there, we’d love to know what you think about dynamic pricing. Shoot us an email at email@example.com. Also, if you have topics you’d like to hear us discuss — especially as Joanna joins the podcast — hit us up. Paul, great question. Thank you so much for emailing it in. This gave us a lot to think about. And Zach, I’ll talk to you next week.
Z: Sounds great.
Thanks so much for listening to the “VinePair Podcast.” If you love this show as much as we love making it, then please leave us a rating or review on iTunes, Spotify, Stitcher, or wherever it is you get your podcasts. It really helps everyone else discover the show.
Now for the credits. VinePair is produced and recorded in New York City and in Seattle, Wash., by myself and Zach Geballe, who does all the editing and loves to get the credit. Also, I would love to give a special shout-out to my VinePair co-founder, Josh Malin, for helping make all this possible and also to Keith Beavers VinePair’s tasting director, who is additionally a producer on the show. I also want to, of course, thank every other member of the VinePair team who is instrumental in all of the ideas that go into making the show every week. Thanks so much for listening and we’ll see you again.
Ed note: This episode has been edited for length and clarity.
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