Will Restaurants Begin Adopting Airline-Style Pricing?

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?

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. What the original Atlantic story, Brian’s response, and your response to Brian’s response have all left out is that there IS a restaurant that does this. NEXT in Chicago (the rotating concept brainchild of Grant Achatz and Dave Beran) makes diners purchase “tickets” to dinner ahead of time and the price for the ticket depends on what day and time they choose to dine. This Friday alone, there are reservations available from 5:30 to 10:30 that range anywhere from $90 – $120 based on when you prefer to eat. While I don’t think it works in real time (although there’s a bar in Silicon Valley that alters their prices in real time based on how popular the cocktails are), it’s an interesting model. Certainly not sustainable for large chains, but for a high-end restaurant with a smaller profit margin, using variable pricing and pre-payment allows them to fill seats and guarantee food costs are covered even if there are no-shows.

  2. I think this misses the hospitality aspect of the restaurant business. We don’t go to restaurants primarily to get fed, we go for the pleasure of eating their food and enjoying their overall environment and hospitality. Restaurants that make us feel like they are trying to squeeze every dime out of us tend not to get our repeat business, because they suck pleasure out of the overall experience. In the end, I’m pretty sure that the restaurants that aggressively optimize their cash extraction will not be ones I will enjoy frequenting. But they may be very successful.

    I’ve already experienced this with one local restaurant where we were regulars from the day they opened. When we left after a meal we’d reserve for the next one. After a few years they became so successful that they required you to call exactly one month in advance at 10am to book the next meal. Their yield went up, but our visits went down. They used to have an incredible choice of excellent wines at very gentle prices. They optimized the wine markups. They had enthusiastic waiters who were into the food, people you’d enjoy having dinner with. Apparently they played games with the waiter’s tips, and got into a fight with them. They changed their staff – now the waiters are just doing a job, and it shows. As their yield went up, their hospitality went down, and instead of eating there 10 or 20 times a year, we now go 2 or 3 times a year (the food is still very good, although the sparks are gone).

  3. I think you’re right. There’s a reason that economists call the costs a firm incurs to change its prices “menu costs.” A restaurant would be unlikely to recoup the costs of printing new menus, training the staff, updating the POS system and website, etc. by being able to charge an extra buck or two for the salmon on certain days or times. Maybe McDonald’s could do it with digital boards at the drive through (add 50 cents to the cost of a Big Mac when there are more than 5 cars in line) but not a small independent restaurant.

  4. Restaurants do practice a “soft” form of this, as you said. Charging more for dinner than lunch. Charging more on high-demand days (Mothers Day, Valentines Day, etc). Some restaurants charge more across the board on Friday and Saturday nights (the Inn at Little Washington used to do this, not sure if they still do). But the idea of truly dynamic pricing where every seat at every meal has its own pricing is very impractical.

  5. Ticketing — with variable pricing based on night of the week, menu, etc. — is done a little bit at the high end of the restaurant industry, though it’s not totally dynamic. The pioneers (so far as I’m aware) were Grant Achatz’s restaurants. It rolled out first at Next, then later at Alinea. Their model is basically a ticket that includes a reservation at a set time, all-in pricing on the meal, gratuity, tax, and drink pairings (if desired).

    They’ve rolled the platform, called Tock, out to some other fine/exclusive restaurants (Per Se, French Laundry, etc.) See https://www.tocktix.com/; http://www.eater.com/2014/5/20/6221899/alineas-ticketing-system-will-soon-be-commercially-available-to-other

    I don’t think it works for something like a QSR or even a neighborhood joint, but at the high end, where dining is an experience (and meals are often a fixed menu), I think there’s a niche for it.

  6. They ready do this open table. No one needs be trained. It’s just a extra percentage of the total bill. Want to eat at7pm on Saturday in NYC and not wait? Pay 25% extra.

    I see this catching on from everywhere in 10-20 years.

    I live outside a military base. Standard bog restaurants. Why wouldn’t a captain or contractor pay 10% more for his whole meal then wait for a private or specialist? They have more income to dispose of. Just like how airlines work. Pay up or shut up.

  7. gary –

    This is already happening at some of America’s best restaurants (soon to be including Per Se):


    This system does have variable pricing based on times, etc.

    It gives restaurateurs revenue-certainty making them much more like airlines then say, rental car companies, who face no-shoes constantly

    Of course this works best (or only) for prix fixe/tasting menu restaurants, but virtually all 2/3 star Michelin restaurants are that now, and they are often the most in demand and most expensive.

  8. Last week, two guys tried selling the Shark Tank crew on reserve bar seat program. Not a winner, although I heard some clubs in Miami will get $20 for a table. Jacking up prices, like mentioned by NG, is common; but table turnover on New York Eve, Valentine Day and Mother Day is also important. So customers should know to make a reservation and be told there is a time limit, once the entrees are served. If the time expires and a party is waiting, the laggers should be strongly encourage to move into the bar.

  9. Two of Chicago’s best restaurants, Alinea and Next, serve only set tasting menus and sell reservations with a demand based ticketing system. A table for two at 9:30 on Tuesday costs less than a table for two on Saturday at 7:30. This let’s them fill their house both nights, while maximizing revenue and eliminating waste. It is not exactly airline revenue management, but it is not far off.

  10. Really? You consider 250 euros a person to be a moderately priced meal? I’ve never spent close to that in my life, and if I did I’d expect it to home with a hooker.

  11. Many restaurants already charge hefty fees for no-shows, and a number offer both pre-paid (non-refundable) ticketing as well as variable pricing, based on a ticketing system pioneered by Alinea and Next in Chicago.

    They’re not as sophisticated as airlines with dynamic pricing based on booking time, number of available seats, and loyalty history, but I suppose that’s largely based on the customer base for a single restaurant being orders of magnitude smaller than an airline.

    There are a lot of good reasons for restaurants to switch to this model, and why it can be a win for both the diner and the restaurant. My “neighborhood” restaurant, Journeyman, switched to the Alinea/Next system last year and has a good FAQ on why: https://www.journeymantickets.com/website/tickets

    There’s the danger of restaurant seats at notable establishments going to the highest bidder, and we already have some examples of that through a new “concierge dining” app called Reserve. In general, though, restauranteurs understand the need that their product remain accessible, and so the benefit of dynamic pricing lies mainly in filling empty seats in an efficient manner.

  12. Grant Achatz does this at his restaurants (Alinea, Next) with great success. He has a set menu, so you pay for a table plus your choice of beverage pairing. Prices vary based on table size, time of reservation, day of week, etc. You also pay in advance, like an airline ticket. I believe he hired a top developer from Google to work on his reservation & pricing system so it could be licensed to other restaurants.

  13. I don’t see this becoming commonplace, but I do see restaurants requiring a credit card and having a penalty price for a no-show. Right now, there really isn’t a disincentive to not show up (and not call).

  14. in DC Seasonal Pantry and Rose’s luxury deck table have gone to prePay flex pricing. Not to mention Komi, minibar, etc which have always been thus.

    It’s the free market Libertarian way, doncha know.

  15. @kokomutz – you do not seem to know what a ‘free market’ or a libertarian is. That a restaurant would be free to do this does not at all suggest that they would, or that it would become prevalent.

  16. You missed my point: many high end restaurants already *are* requiring payment upfront and adjust price to demand. Others require a cc at booking and charge a large no-show fee (both of the Michelin starred reataurants we visited in Kyoto had this policy). Technology enables price and policy responses to demand in all manner of industries these days. Ie, closer to a true free market system.

  17. @kokomutz you missed *my* point which is that that a market system may just as easily entail fixed as variable pricing, depending on the product, there’s nothing inherently ‘more’ market-based about variable pricing.

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