Restaurants are like airlines in that they have seats which – if unused at a given meal – can never be resold. It’s spoiling inventory.
And they want to earn as much per table as possible, a diner spending less than they might is money foregone that can’t even be made back.
So like airlines they should want to vary prices with sophisticated yield management… Brian Sumers says in his restaurant he would vary prices based on time of day, day of week, whether or not it’s a holiday, weather, and overall demand.
I’m not so sure this is a good idea, at least to the extent Brian suggests or that airlines practice the craft. Restaurants often charge more at dinner than lunch (sometimes varying portions as well), and discount non-peak times (“happy hour”).
But the analogy that says:
- Airline pricing is sophisticated and good
- Restaurants are similar in many ways to airlines
- Restaurants should behave more like airlines
I am not sure holds.
Most people don’t fly nearly as regularly as they go to restaurants. And they don’t generally choose an airline based on popularly — the extent to which other people are flying that airline, and talking about it, and trying to get onboard.
Many restaurants trade as much on reputation, as much for the story, and as much for the other patrons.
Restaurants are also different in that – ancillary fees notwithstanding – you buy a ticket for travel up front and that’s the price of your flight. You see the price, lock it in, before you go to the airport.
In contrast, you go into a restaurant and choose what you’re going to eat, once you’re already seated and taking up the table for a period of time. And you may choose at least partially based on price, but cheaper menu items don’t mean you finish faster or at least fast enough to turn the table so the restaurant can seat someone else during peak times.
When are you supposed to learn about today’s (or this moment’s) pricing? Will consumers check websites for real-time updates before heading out in the car? Or will they show up, decide something is too expensive, and leave – after already spent time and gas money to get there? What will that do to how likely a consumer is to come back?
Finally, restaurant chains are generally smaller than the large network airlines with sophisticated revenue management departments. Aside from all of the consumer-facing challenges of constantly varying prices, they can be expensive to maintain. It’s an expense that easily makes sense amortized across thousands of flights each day, but may be harder to amortize over mere scores of diners.
Eleven Madison Park and Per Se in New York are hard to get into. There are more people willing to eat there on a given night than they can accommodate. They’re also expensive meals. But presumably they could raise price and equilibrate between the number of diners who wish to eat and the seats they have to offer. And yet… it’s precisely that they’re tough to get into that signals quality and desirability and help support the prices they charge now.
There are restaurants that could clearly charge more. I was fortunate enough to eat at El Bulli before it closed, well known as the toughest restaurant in the world to get into and yet surprisingly inexpensive for a Michelin three star let alone what some claimed was the best restaurant in the world (I got out of there all-in for two people at not much more than 500 euros). They could have raised price but didn’t, since chef Ferran Adria got consumptive value out of his idea that “I don’t cook for millionaires.” For him ‘moderate’ prices were a vanity.
But beyond El Bulli the market for some restaurants may not be as thick, and price may not serve as fine-grained and real-time a way of ensuring that each table is filled with diners consuming food above marginal cost, and that when full each table goes to the diners willing to spend the most.
I’m skeptical that restaurants could adopt airline pricing models successfully, at least on any industry-wide sort of scale. I don’t think we’ll see it. Do you?