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Dynamic pricing: revenue management comes to the restaurant industry

Back to “business as usual”, hotel and catering establishments are facing rising operating costs, which brings to the table a much-needed reflection on profitability, differentiation and also pricing strategies. Some chains and groups have already begun implementing dynamic or variable pricing (also known as revenue management). Will consumers and establishments go along?

The question is simple: are consumers willing to pay more for a coffee at 8am than at 4pm? Or to put it another way: would establishments charge more for a coffee served at 8am than at 4pm? Variable pricing, in short.

The answer is clear for restaurant consultant José Martínez, “El Alkimista: he considers being able to work with dynamic pricing is more than justified for the hotel and catering industry across the board. “Other sectors, such as tourism, raise prices when there is an increase in demand, and they do so in order to maintain their quality of service. The same should apply to the hospitality industry,” he says. And he explains that, by requiring more staff, more supplies, more electricity consumption… it is more expensive for the establishment to serve a coffee at 8am. “Ironically, in hospitality, the times of peak demand are those with the lowest profitability and highest degree of effort,” he affirms.

Erika Silva, business consultant and director of the online restaurant marketing school Escuela de Marketing Gastronómico agrees: “If we can easily pay 30% to 100% more in hotels depending on the booking season, shouldn’t it be the same in the restaurant industry? In my opinion, this is a strategy that should be applied to improve the profitability of companies in the sector, provided it is well-communicated and does not give rise to confusion and complaints, and that it is particularly applied in those companies whose customers are not so sensitive to price”.

Implementing dynamic pricing in the restaurant trade is a complex task, and both consumers and the sector itself must be “convinced”. “In order to do this, you need a broad consensus of the vast majority of the hotel and catering establishments, as well as the support of hotel and catering associations, and know how to communicate the message properly so that the public understands why”, says El Alkimista.

For Erika Silva, “it’s not about raising and lowering prices with a strategy behind it, but applying criteria-based revenue management and always thinking about the customer’s benefit (better product, better location, advantages when booking, etc.)”.

In fact, contrary to what it may seem, dynamic pricing is not new in the restaurant industry. “It’s been with us for decades, but it just didn’t have this name or wasn’t talked about much,” explains the director of Escuela de Marketing Gastronómico. “For example, in the restaurants of the Saona group, at the same table and at the same time, four people could be paying a different price for the same menu of the day, and this happens because some dishes carry a supplement of €2, €3 and even €5. The menu offered as “starting from €9.90″, but the reality is that you could pay, plus a drink, €13, €15 or more. And this is already being seen in many establishments.”

Dynamic pricing platform

With the unstoppable digitalisation of the sector has come initiatives that “professionalise” revenue management in restaurants, such as that of the start-up DynamEat, which aims to revolutionise the sector with its smart pricing platform and dynamic menus. And it wants to do so through Artificial Intelligence and Machine Learning. “With the rise of digital menus, restaurants are no longer stuck with a fixed offer, and a world of possibilities is opening up that allow them to make the most of the opportunities out there,” explains Javier Espinosa, CEO of DynamEat.

In Rodrigo Domínguez ‘s video for Hostelco Stories (link to video) Espinosa claims that this type of tool aims to “bring in demand on days when the restaurant is empty and increase profitability on busier days”.

It is a revolution backed up by the figures achieved by some restaurant groups such as the Arzábal Group or the Azotea Group,both DynamEat customers. Arzábal founders Álvaro Castellanos and Iván Morales say this solution has managed to increase the profitability of their restaurants by up to 30%, and that dynamic pricing increases the quality of what they serve, and the customer response is more positive.

At the 1st Meeting on Revenue Management in the Restaurant Industry

Fernando Vives, Chief Commercial Officer ofthe NH Hotel Group, explained that “revenue management brings a notable professionalisation to the restaurant industry, and technology is essential for proper optimisation, paired with a customer already used to this type of dynamics in other consumer sectors”.

Hotels: focusing on consumer behaviour

And what about hotels, where revenue management is widespread and accepted? In times of Covid, it is particularly relevant, and many companies offer advanced Revenue Management solutions, such as BeOnPrice, IDeaS, Yield Revenue or Profitroom, to give an example.

Obviously, revenue management is just as important today as it was before the pandemic, but “much more attention needs to be paid today to improving cost control and profitability, as well as generating demand,” says Erik Muñoz, CCO of the revenue specialist firm Lybra. “To be successful, hoteliers must attempt to pinpoint new consumer behaviours that will drive new traveller segments, and then adapt their revenue management and marketing strategies to reach that segment”.

The main goal for hotels is to increase their direct bookings to counteract the high commissions charged by OTAs, and Muñoz is clear: “There is a very simple way to do this: prioritise customer service above all else.If a hotel delivers an amazing hospitality experience to every guest, consistently and predictably, over time it will have more power to gradually shift more bookings to its direct channel,” he explains. “The mistake many hoteliers make is to focus too much on the rising cost of third party distribution, rather than focusing on what their business is all about (and what will make their establishment more profitable in the long run): true hospitality.” Something that is perfectly applicable to the entire hospitality sector.

Marta Renovales (Profesionalhoreca.com)

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