Restaurants across the nation are adopting surge pricing strategies, resulting in significant profits for these establishments. Barbecue chain Tony Roma’s and around 100 other small restaurants have already implemented fluctuating menu prices during peak times, a practice that fast-food giant Wendy’s plans to introduce next year. Sauce Pricing, a Los Angeles-based startup supported by founding members of Sweetgreen, Uber, Airbnb, and private equity firms, specializes in providing software for dynamic pricing and has reported that restaurants can increase prices by 10% to 20% during lunch rushes, resulting in customers paying an extra $1 to $2 for a $10 item. This approach has enabled some restaurants to double their profit margins from 10% to 20%.
Rachel’s Kitchen, a casual eatery based in Las Vegas, has seen tremendous success with this pricing strategy, earning an additional $64,000 in profit across its three stores annually. The CEO of Rachel’s Kitchen, Debbie Roxarzade, confirmed that the company utilizes Sauce Pricing’s software and maintains a cap of a 15% increase or decrease in menu prices. Tony Roma’s in Orlando, known for its ribs, did not provide any comments regarding its use of Sauce Pricing’s software. Although Sauce Pricing listed ice cream favorite Carvel as a customer on its website, Carvel denied any association with the startup.
The surge pricing model, often referred to as “Uber-style” surge pricing, allows restaurants to increase the cost of items during busy periods. While it is theoretically possible for prices to decrease during slower times, it remains unclear if Wendy’s will implement such price adjustments. Wendy’s CEO, Krik Tanner, announced the company’s plan to invest in a dynamic pricing pilot, which has stirred both anger and anxiety among customers who are weary of continually rising food prices.
The majority of price adjustments using Sauce Pricing’s software are focused on online orders and aim to help restaurants manage increasing labor costs and delivery fees from popular platforms like Doordash, Grubhub, and UberEats. With the growing reliance on delivery services, particularly during the pandemic, these costs have become a significant factor for restaurants. Industry experts emphasize that dynamic pricing has been a longstanding practice in the restaurant industry, with establishments frequently adjusting prices to attract customers during slower periods or offering promotions such as happy hour specials or free delivery during unfavorable weather conditions.
However, some critics argue that fluctuating prices can undermine the sense of reliability and hospitality that customers expect from restaurants. Despite this, experts predict that surge pricing will become more prevalent in the restaurant industry, following in the footsteps of sectors like airlines and hotels that have successfully implemented this strategy.
Restaurant analyst Mark Kalinowski believes that consumers will eventually accept surge pricing if a significant number of restaurant chains adopt it. He compares it to the airline industry, where flight prices can fluctuate dramatically within a week but do not deter people from traveling. As the trend towards surge menu pricing is fueled by food delivery services like UberEats, it is only a matter of time before the restaurant industry fully embraces this strategy.
In conclusion, surge pricing is proving to be a lucrative strategy for restaurants across the nation. By implementing dynamic pricing during peak times, establishments have seen significant increases in their profit margins. While some customers express concern over rising food prices, experts believe that surge pricing will become widely accepted as more restaurant chains adopt this practice. With delivery services playing a crucial role in revenue generation for restaurants, dynamic pricing offers a solution to rising labor and delivery costs. As the industry continues to evolve, surge pricing may become as common in restaurants as it is in other sectors such as airlines and hotels.
