The $40 Entree: Restaurants & Dynamic Pricing

From the NYTimes, an article on pricing in the restaurant and hospitality industry.
“Forty is the new 30,” says Richard Coraine, the chief operating officer of Union Square Hospitality Group, which recently began charging $42 for a 1¾-ounce appetizer portion of lobster at lunchtime at the Modern in New York. Ten percent of its lunch patrons order the dish, it says.
Apparently the $40 entree is migrating from high-end NY restaurant menus to your average restaurant chain across the nation.
Here’s the real story – the use of analytics to increase profit margins:
But what makes the rise of the $40 entree so significant is not just the price creep, it’s the sophisticated calculation behind it. A new breed of menu “engineers” have proved that highly priced entrees increase revenue even if no one orders them. A $43 entree makes a $36 one look like a deal.
“Just putting one high price on the menu will take your average check up,” said Gregg Rapp, one such consultant. “My mom taught me to never order the most expensive thing on the menu, but you’ll order the second.”
With just a few keystrokes, restaurateurs can now digitally view the entire history of a dish: how the lamb sold around this time last year, whether it did better when paired with squash or risotto, and how orders rose or fell when the price went from $39 to $41.
With a few more clicks and a new stack of paper in the office printer, the menu can be revised to test new prices.

Meanwhile the obesity problem just keeps growing. Wonder if that would end if McDonald’s switched to $40 dollar entrees…?!
Speaking of analytics, to learn more about “Competing on Analytics” check out Tom Davenport’s free webinar on the subject – October 31, 2006.

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