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Will Surge Pricing Sour Customer Loyalty and Negatively Affect Restaurants’ Business?

Is Surge Pricing Bad for the Restaurant Business?

Restaurant owners face increasing profit margin challenges due to rising food sourcing costs, labor costs, and other economic factors. This month in California, the new $20 minimum wage is now in full effect, making a massive difference in some restaurant owners’ bottom lines. In order to offset these rising operational costs, more restaurants are choosing to raise the cost of menu items depending on the time of day and demand (surge and dynamic pricing). 

Our recent national consumer survey with Dynata shared that 81% of diners would rather change their meal plans or skip eating out altogether than pay those higher prices! So while we understand the strategy behind surge pricing, we’re here to shed some light on how your business can still thrive without playing the surge pricing game that will most likely deter customers.

Is Surge Pricing the Right Move for Your Restaurant?

The study suggests dynamic and surge pricing models may not be a good idea as a long-term strategy. As seen in recent weeks with national media coverage on the topic, dynamic or surge pricing models don’t sit well with customers. According to the survey, 64% of diners said they have a negative reaction to restaurants using surge and dynamic pricing.

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This means that surge pricing could actually hurt your business in the long run by driving away loyal customers. This signals the need for restaurants to reevaluate pricing increases and instead explore other potential ways of increasing revenue. Something note is in the survey findings

48% of diners said they are more understanding of small chains and local restaurants needing to raise prices. This does reveal that owners of smaller restaurants have more room than larger chains to experiment with surge and dynamic pricing in order to help offset their high operational costs.

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How Do Diners Feel About Extra Fees?

56% of consumers surveyed said they choose/will choose in the future to order from a restaurant with lower fees. Consumers are feeling the pain of higher costs too. So there isn’t much surprise as to why 63% of diners are willing to pay a small fee to make up for increased operational costs. However, 21% of diners are only willing to pay a minimal fee of less than 3% of their total visit. “Coping with the recent $20 minimum wage in California alongside high national inflation poses significant challenges for restaurant owners,” said Bill Mitchell, Executive Chairman of HungerRush, and former President of Global Operations of Papa John’s International.

“While raising prices may seem like a straightforward solution, it can negatively impact consumer loyalty. We’ve witnessed backlash against surge pricing models in the past, demonstrating the importance of preserving customer experience and loyalty. Our data highlights the critical role of customer satisfaction in a restaurant’s profitability. Instead of solely relying on price hikes, we recommend leveraging technology and optimizing workforce planning to enhance operational efficiency and minimize expenses.”

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As restaurant operators and owners evaluate if surge and dynamic pricing models are right for them, they need to consider the sticker shock diners will experience. If they go this route, they need to be prepared to make up for the possible 22% of loyal customers they will driving away due to surge pricing.

What are Other Options to Surge Pricing?

  • Embrace Technology: Utilize a POS system that can streamline operations and optimize workforce planning, potentially saving you money.
  • Focus on Customer Experience: Happy customers are repeat customers! Prioritize providing a positive dining experience to build loyalty.

The Bottom Line:

While the surge of costs is real, a surge in customer frustration over surge pricing is even worse for your business. Focus on efficiency and customer satisfaction instead, and you’ll be on the recipe for success!

By streamlining operations with HungerRush, you can focus on what truly matters – creating delicious food and delivering exceptional customer experiences.

Stop the surge of stress and start thriving! Contact HungerRush today and see how our all-in-one POS system can help you optimize your restaurant and keep your customers coming back for more, without the need for surge pricing.

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