The Urge to Surge: What Surge Pricing Could Mean For Your Restaurant

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The Urge to Surge: What Surge Pricing Could Mean For Your Restaurant

March 13th 2018


March 2018

In the “ good old days,” we tried to drive additional sales outside of our peak core dining periods with promotions. This includes staples like Happy Hour or Early Bird Specials. In many cases, these promotions helped to bring additional revenue to static periods of the day, but the methods were primitive and fixed. In the age of technology and digital marketing, there has to be a more efficient and responsive electronic solution that is not only effective, but is measurable.

In the age of “disruptive technology” we have seen many of the old standard practices completely upended and transformed into new ways of doing business. The list is long and includes the business models of Uber, Amazon, phone-based payment platforms, restaurant reservation platforms and small business “fintech” lenders. It seems endless.

I am not a frequent Uber rider, but during rainy days in New York City I learned about their practice of surge pricing. It was a bit of a shock to see that you would be charged 1.5X, 2X or more than the normal fare just because of supply and demand. If you want it now, you can either pay the asking price or step aside and try to find a taxi. Chances are that can take you a considerable amount of time. Especially with the meter running while you are stuck in traffic – you will probably pay more.

This is nothing new. Many other businesses have been adjusting prices to reflect demand and availability to maximize their returns. Hotels always cost more during holidays, conventions and peak demand. Airlines offer lower pricing the further out from the departure date that you book your flight. If you need a last-minute flight, you will most likely pay dearly. Movie theaters have lower prices for weekday matinees.

So what does this have to do with the restaurant business?

We print our menus and go with them by the meal period (Lunch / Dinner), all day same pricing and often only change them periodically. There is no flexibility or incentive for customers to fill dead space in your restaurant. This is a very crude form price differentiation.