Dynamic pricing has been benefiting airlines for many years. The restaurants decided it was their turn.

No one is surprised to see them on airlines, ticketing platforms, or transportation services like Uber or Lyft, but dynamic pricing in restaurants remains a rarity. Or not. The same philosophy of rate fluctuations, designed to adapt to context and fluctuations in costs and demand, is permeating the hospitality industry. Spaniard and foreigner. Of course, it has not yet reached the weight that it has in other industries, but it already leaves interesting examples.

As background, the key question is: Should a restaurant charge the same price for a steak on a Tuesday lunchtime as it would on a Friday night, regardless of availability or demand? And if they decide not to do this, who benefits from these changes?

What is dynamic pricing? Something you’re probably more than used to if you fly normally or have tried to get a ticket for an Oasis tour. “Dynamic prices” are nothing more than fluctuating rates that adapt to factors such as demand, competition, market, inventory or external factors. These are not fixed tables. They change. In real time or at intervals.

In fact, there are companies that use AI to create so-called “algorithmic dynamic prices” that automatically update based on certain variables. As a strategy, the system has advantages and disadvantages.

Meals during rush hour? This concept may surprise you, but the truth is that dynamic prices have reached bars and restaurants. Or rather, they have been trying to break into this sector for some time now, a particularly attractive business niche for the companies responsible for making them possible on a technical level. After all, in Spain there are tens and tens of thousands of places where you can drink and eat. In 2023, INE counted approximately 244,500 restaurants, food stalls and drinking establishments. This is not counting other related categories.

In 2021, EFE has already identified an “emerging movement” in the adoption of dynamic pricing in the hospitality industry, with large restaurant groups interested in the model. Proof that there are people convinced of its capabilities is that there are companies already in the business of providing technical support to bars and restaurants.

From theory… to the cards. Or rather, boards on which buyers can follow price fluctuations. Newspaper A few days ago I published a report in which I named four hospitality establishments using systems more or less related to dynamic rates: a restaurant in Madrid, two establishments in Granada and a nightclub in Seville. A business located in the capital of Saint Madrid is a good example of how this strategy works.

The store has a large illuminated screen reminiscent of the New York Stock Exchange with menus, prices, variations and red and green arrows showing variations. “Prices fluctuate every five minutes depending on market supply and demand, schedules and season,” reads a message posted on the dashboard itself. EPE clarifies that the amount the customer pays is the amount that appears when the order is placed. Another hint on Wall Street is that the establishment is also considering the possibility of a “crash,” a “sudden decline.”

But why? In addition to being a way to differentiate themselves and a commercial attraction today, dynamic pricing offers distinct advantages to bars and restaurants. This is at least stated by the model’s defenders, such as Deliverect, which insists, first of all, on its flexibility, which is difficult to realize when using conventional fixed price tables. Low premises traffic? Discounts may be offered. Big influx? They are designed to maximize profits.

“If a new restaurant opens nearby with dynamic pricing, the establishment may quickly change its rates to remain competitive, thereby discouraging customers from going to the new restaurant,” says Deliverect in an article on dynamic pricing. The system emphasizes its ability to “respond quickly to market changes” or to stimulate demand.

Not everything is gold. The system is not infallible. And not only because applying it can be more or less difficult for a small hotelier, which has already prompted specialized companies to take the step and offer their services. Deliverect itself admits that the system faces certain “challenges”, such as possible negative customer reactions to a price list that may be different today than it was yesterday.

Not to mention that implementing a dynamic model requires much more investment than a regular price list: it requires transparency, constant monitoring and adjustment. Despite these shortcomings, the company says dynamic pricing can be “valuable” for restaurants in a “saturated market.”

30% more profitability? Dynameat, which says it uses artificial intelligence to “adapt” a “dynamic menu” to each scenario based on parameters such as inventory, diners, elasticity or the success of each dish, claims it can increase profitability by up to 30%. “During peak demand, this allows you to pare down your menu to only feature items that are less fancy, more appealing to the customer and provide greater profitability.”

Outside Spain. Spanish restaurants aren’t the only ones experimenting with dynamic pricing. The media loves Wall Street Journal or the CBS News network also replicated its implementation on the other side of the pond, in the United States. This change is being driven by the digitization of menus and the rise of online ordering. For example, Los Angeles-based Sauce Pricing, which offers dynamic pricing automation services, cites the example of one of its clients: Sitio, a California restaurant chain.

Sitio decided to reduce rates by 10–20% during less busy periods and increase them to 8% during busier periods. The result, he explains, was an overall increase in revenue of 12%. In cash terms, that would be about $72,000 a year, an amount attributed to “orders that would otherwise not be available.” Another company, San Diego-based Cali BBQ, assured in March TVSJ that variable prices allowed the network to increase monthly supplies.

“When the Kitchen is Dead”. The philosophy is not much different from the philosophy of the famous happy hourused in bars for years, although much more complex. “When the kitchen isn’t running, we’re willing to charge a dollar or two to keep it running and the staff working,” they explain. The truth is that the promise of dynamic pricing, its ability to drive demand during off-peak hours and adapt to costs or inventory needs has sparked interest in the model in sectors other than the hospitality industry. The BBC recently profiled supermarkets that were using them, or stores in the Netherlands with updated electronic labels.

Lesson from Wendy’s case. Just because a proposal has benefits and is theoretically attractive does not mean it will be easy to implement. The American network knows this well. fast food Wendy. The company announced earlier this year that it wants to introduce dynamic pricing and “enhanced features” powered by artificial intelligence in 2025. This comes alongside a million-dollar investment in digital boards that will offer products and offers to customers. Not everyone thought it was good.

Among their customers were those who believed that this change would ultimately result in something negative for their pockets: more expensive hamburgers at peak times, which is when more people demand their goods. After a torrent of criticism across chains, Wendy’s had to clarify that its managers’ words had been “misinterpreted” and that while prices could be adjusted in any direction, the existing cap would remain in place.

“Clear and transparent communication”. In the article Talk In his analysis of the case, Wendy Omar H. Fares, a professor at the Ted Rogers School, insists that what happened proves that dynamic pricing strategies must be accompanied by two important requirements: “clear communication and transparency.” It is this latter value that they are missing from consumer organization Fairer Finance. “It’s difficult for consumers to make informed decisions. They are designed to make it as easy as possible to make a profit.”

Images | Ann Nygard (Unsplash), K8 (Unsplash) and Toa Heftibah (Unsplash)

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