Restaurant Industry

RestaurantIQ: Yield Management in the Restaurant Industry

UBER surges their ride prices on busy nights. Booking a red-eye flight can save you a ton. Hotel Tonight and Hotwire offer steals on last minute rooms.

This is yield management, a concept pioneered in the 1980’s by the airline industry. More recently, innovative companies have adopted the fundamentals of yield management (YM) to maximize revenue and profits. In short, they fluctuate prices in anticipation of consumer demand - charging more to consumers who are willing to pay more, and charging less to price-sensitive consumers. Amazon, the mammoth online retailer, changes prices over 2.5 million times a day (Business Insider, 2014). Other great companies such as The Priceline Group, Uber, and Hotels.com, use predictive algorithms to analyze consumer demand and set smart prices to appeal to the most possible consumers.

So why should the $140B U.S independent restaurant industry be any different? An empty restaurant table is just like an empty airline seat, an empty hotel room, or an empty cab seat. Each is perishable inventory - the longer they sit empty, the more revenue is lost. And filling them does not require much relative incremental expense.  

Restaurants already reduce prices and use incentives to attract diners during off-peak times. Such as happy hours during early evening and specials on off-peak nights. Mondays have become burger night, Tuesdays are taco night, and Wednesdays are 1/2-price wine night. But the challenge is creating the real “pull” needed to inspire a guest - i.e. a well-communicated and intelligently-calculated incentive. 

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So, how can a restaurant calculate intelligent prices, communicate price changes and fill empty seats? A yield management platform focused on restaurants! The time is ripe in the independent restaurant industry for a true YM platform. Why?

  • Perishable Inventory. Empty tables mean lost revenue.
  • Low Incremental Costs. Food & drink costs a restaurant about 25%, so there's wiggle room to cut the price & still make a profit.
  • Prices Matter. Competition is fierce and increasingly-savvy diners are sensitive to changes in price.
  • On-Demand Matters. Consumers make decisions fast. Mobile technology allows diners to assess prices on the move.
  • Platform Technology Exists. Price changes are best communicated en masse via a marketplace. Calculating the "right price" is best achieved via a marketplace. Marketplaces work best on platforms.

Enter Spotluck. A platform that has the attention of thousands of hungry folks every day. And a platform known for COMMUNICATING price fluctuations and specials, with software that helps to calculate the right price at the right time. When it rains and diners seek cover in their family rooms, a single local restaurant is not able to advertise an immediate special for that night. But on a platform, where a Weather Bonus Discount drives prices down for everyone, restaurants see real increases in traffic when they’d otherwise be counting flowers on the wall.

 

Spotluck is a merchant-centric mobile platform that provides an easy way for restaurants to show off their wares and drive traffic when they need it most. We’re blazing a new trail by applying time-tested economic theories to the local restaurant space. Our Restaurant IQ series takes a deeper dive… 

 
 

RestaurantIQ: The Power of the Spin

The Power of the SpiN: Avoiding Cannibalization & Maximizing profits


The spin - 15 seconds of excitement for Spotluckers, yet a core component of protecting our Spotluck merchants. Here, we explain how our spin, which may seem like a fun gimmick on its face, is crucial to maximizing restaurants’ profits.

Restaurant owners have a love-hate relationship with discounts. They unanimously agree that a restaurant advertisement must have a tangible incentive to inspire action. And they love incentives that help lure new guests who fall in love with a dish and become lifetime regulars. But they hate incentives that decimate profit margins with no long-term benefit. The holy grail of advertising is finding the right balance, where profitable incentives are maximized and wasteful incentives are minimized. 

For restaurant profitability, cannibalization occurs when diners enjoy a discount despite being ready and willing to pay full price. By offering discounts to these folks, restaurants are “eating up” their own profit margin.

So, how does a restaurant avoid cannibalization? MAKE DISCOUNTS EXCLUSIVE! Extend them to a limited audience for a limited time. This increases the chance that the discount will inspire a NEW guest to act NOW.

Consider a paper coupon. If mailed to every resident within 20 miles of a restaurant and valid for three months, who will it attract? Most likely, the couple that expects to visit your restaurant ANYWAY sometime in the next three months, who simply store it in a purse until that visit happens. This is cannibalization. But, if the paper coupon could be strategically mailed to new diners and expire in just a couple days, it would more likely inspire new folks to take immediate action. It would change consumer behavior. Such a limited-time, targeted incentive isn’t practical with paper. But on a mobile app…

 
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Or consider a 50%-off coupon floating on the internet – diners have no incentive to jump on the deal. Why would they buy it in advance when they can simply snatch the coupon moments before dining? Limiting the audience and duration of internet offers was once achieved with daily deal email blasts, but users have grown tired of this marketing tactic. Instead, they seek an on-demand service which they use only when the dining decision arises. Providing such a dynamic service on the web is tough. But on a mobile app... 

Enter the spin. The Spotluck spin, whereby Spotluckers gain a bonus discount to one randomly-selected restaurant each day, protects larger discounts by limiting them to a handful of lucky diners willing to act immediately. The greatest rewards go to flexible foodies looking for a quick decision. It changes consumer behavior by creating pull through exclusive incentives. Regulars simply enjoy a minimal courtesy incentive while new diners are enticed with juicier incentives. In summary, the spin maximizes the opportunity to introduce a restaurant to a new guest, while minimizing the risk of profit-killing cannibalization.

 

Spotluck is a merchant-centric mobile platform that provides an easy way for restaurants to show off their wares and drive traffic when they need it most. We’re blazing a new trail by applying time-tested economic theories to the local restaurant space. Our Restaurant IQ series takes a deeper dive…