Multi-Channel Restaurant Pricing, Food on Demand

Transcript:
00:00
Tom Kaiser
This session just warms my heart. I love that this pricing panel had the most buzz of any session of the entire conference, but that is certainly not a surprise, especially to any of you who've been at other industry conferences on the circuit this year. So we are at multi channel restaurant and the session is clearly dedicated, catered to what's the hottest topic in the industry right now, or certainly in the top handful. And nearly every single restaurant brand is concerned with inflation and supply chain and whether they're taking too much price and scaring away their customers. And so for that reason, all of that is a backdrop. Data driven pricing is really the key. And so we've also, within a subset of that, seen the rise of dynamic pricing where restaurants are changing their prices in an effort to influence demand, whether up or down, depending on a variety of factors, including the restaurant's capacity at the moment.

01:06
Tom Kaiser
So dynamic pricing is also an extremely hot topic right now and we're seeing the first brands jump into the pool. Noodles and Company is the first big brand, at least to my eyes, that has gone into dynamic pricing. And so they are tying their pricing to any number of factors, whether that's on the spot demand, weather, historical patterns. And once again, we've got the restaurant industry taking a page from the travel and hospitality world, which we've seen a time or two before. So with so much economic uncertainty and conflicting indicators, both operators and customers are more inclined to make knee jerk reactions and pricing decisions that are based on emotion rather than data. And at other industry conferences that I've attended recently, I've seen that, I've heard that and I've heard CEOs say, I'm not really sure. And we're still trying to figure some of that out and still determining how this elasticity impacts our customers and their behavior.

02:15
Tom Kaiser
And that's not a good place to be. And so we are here to do something about that. And we could scour the planet and not come up with a smarter, more passionate group of panelists to take all of us through this topic. I'm just so grateful to everyone that we've got here on my left. And so we are, I'm going to back up. Most of our panelists know each other very well, which is absolutely amazing, and some of them have even been students of Cornell. Professor Emeritus. Sherry Kimes. Right here on the left. Sherry has been working in the revenue management world since 1988. So that's absolutely incredible. And you've also had the pleasure of educating some of the folks and the top leaders in revenue management, including our panelists here. So we're very happy to have all of you here, especially Sherry, since you're kind of the connective tissue holding everybody together.

03:12
Tom Kaiser
So thank you for being here.

03:14
Sherri Kimes
Thanks for having me.

03:15
Tom Kaiser
So, next up, and I'm going down on the other end of the table, we've got Michael Lukianov. He's a New York based data scientist who recently founded Extra P 360, which is a company giving restaurants a more nuanced and sophisticated view of their customers trade areas and pricing options. So he and Sherry go way back. Michael, thank you very much for joining us.

03:39
Michael Lukianoff
Thanks for having me.

03:40
Tom Kaiser
It's great to meet you in person. So then we've also got colin webb. He's the co founder and CEO of Sauce, which teamed up with the former head of Data at Uber and former CMO of Burger King to assist restaurants with dynamic pricing. So, Colin, great to be up here with you again, sir.

03:59
Colin Webb
Great to be here and thank you.

04:01
Tom Kaiser
And then our final panelist is Ashwin Kamlani. You will not miss him going down the hall. And he is the co founder and CEO of Juicer and certainly the most fashionable person in our entire industry. He and Chief Operating Officer Carl Orsborn are helping restaurants implement dynamic pricing at their startup company. And he gained absolutely enormous amount of information and knowledge in this category from his years spent in hospitality. So definitely a great backdrop to what you're doing now. So thank you for being here, Ashwin.

04:34
Ashwin Kamlani
Thank you, Tom.

04:36
Tom Kaiser
So I would like to jump right into this here. So I've asked each of you a variant of this question. We've all spent a lot of time emailing and on the phone together in recent weeks, and so I'd like to do so again to set the stage. I'm wondering how you all feel about this being, in many ways, the golden age of pricing and revenue management. And Sherry, that's a question for you. How do you feel about how this has suddenly become such a big deal?

05:03
Sherri Kimes
It's really exciting. I mean, the first time I taught a course in restaurant revenue management, if you're my undergrads, I would say I was teaching this since before you were born. And they would go, really? But the first time was in 1999. And so it's so exciting to see the sorts of things that we've been talking about. And Mike was in year number two of the class, but were talking about not only pricing, but there's so much more to revenue management than just pricing. There's also the capacity side of it. And then looking at how revenue management has evolved in different industries, I think is fascinating, too. So, yes, hotels, yes, airlines, but then let's think other ones. Panama Canal, let's think live entertainment, let's think healthcare. If we could do Uber, it goes on and on. And here we are in the restaurant industry.

05:51
Sherri Kimes
And to me, the most exciting part of this is that there's a lot of places we can look to learn some lessons. But yes. Is it exciting? It's really exciting.

06:01
Tom Kaiser
Well, I want to throw a variant of that question your way, Michael. You've been focusing on this side of the industry for a long time as well. And I've asked you almost that exact same question. You've said that you're not exactly popping champagne corks right now because it's so difficult for so many operators, whether they're large or whether they're small. And so where do you see Michael, restaurants making wrong decisions? Where do you think some aspects of the industry are going in the wrong direction?

06:31
Michael Lukianoff
Yeah, I think I feel a little bit differently about that. On the one side, sure, I've been in pricing and revenue management for decades, but at the same time, I've also seen so many economic cycles and I know that people will sort of pile into what seems to be the right thing. And when inflation is starting to go up, then everybody sort of piles into saying, okay, well, it's time for us to get into a pricing action. And everybody sort of tends to get into it at the late part of the cycle. And then when it starts to go down onto the other end of the cycle, then that's when people start to get into trouble and make bad decisions. And that's what really worries me, is not so much about how people are trying to figure out how to increase their prices and do it the right way.

07:20
Michael Lukianoff
Right now, what's worrying me now is what's happening as inflation starts to taper off and how the industry is going to manage the other side of this. And that's where my eyes are focused right now, is as I hear CEOs talking about, hey, we've got no price elasticity in our system. Well, I know how these things are measured, right? And I know that when you've got inflation going up and people increasing their prices after we've come out of a long period of sort of a decline in demand and then an acceleration in demand, you get a lot of false negatives. Right? So some of these things are being read incorrectly. So people are thinking, the consumer has got nothing on me. I can keep raising my prices. So I've seen this ballgame before and I know how it ends and it's not going to end very well for a whole lot of people.

08:16
Michael Lukianoff
And so I'm not popping champagne because I'm a little worried.

08:21
Tom Kaiser
Well, you're making me worried now too, colin, I'm wondering, how do you define dynamic pricing and why do you think that's an appropriate fit for this moment? I think a lot of us are familiar with the term, but how do you define it?

08:37
Colin Webb
Yeah, so I mean it's even more broadly than dynamic pricing. I would say now is the age of being able to use data in a smarter way and pricing is a tool of being able to do that. And so if you look at the restaurant industry over the last five years while COVID at least kind of the initial surge is over, you're still seeing restaurants digitizing faster than ever. Right? We're all getting on these digital platforms. And so we've amassed so much data now that we can actually make actionable through things like dynamic pricing. And so whenever there's a mismatch of supply and demand, there's an opportunity to be smarter with the pricing. And at sauce, I would say we've seen restaurants, and I'm sure probably many of you have seen there to be varying levels of demand throughout the course of the day. You've seen varying levels of supply throughout the course of a week.

09:32
Colin Webb
Right. The cost of chicken might change on Tuesday, and then Friday is a very different story for how you're dealing with these food suppliers here and how you're procuring orders. Right. And so I would say pricing is essentially a way of being able to use data to match that supply and demand that's ever changing in the restaurant space.

09:54
Tom Kaiser
That's very well said. Ashwin, I want to move to you because when we first started talking about this panel a little while back, you really stressed that you wanted us to focus on pricing in general, not just specifically dynamic pricing, which I think is a good reflection of what's going on in the market, but also a reflection of what you guys are doing at Juicer and how you're broadening your focus a little bit. So you're also all about data driven pricing. I think everyone here is. So how many restaurant groups, Ashwin, do you see making pricing decisions based on concrete data as opposed to how they feel about it?

10:28
Ashwin Kamlani
Yeah, that's a great question. So what we've seen so far with our customers is that just getting your base pricing right is a huge leap forward. So I think echoing what everybody here said, using data to make smarter decisions is a good idea. I don't think anyone disagrees with that. Now, when you talk about dynamic pricing thing, then people have to kind of decide, oh, do I agree with that or do I not agree with that? And is that going to work? And is it not going to work? Dynamic doesn't have to mean you're changing prices every five minutes. This is not the airline industry. I don't think anybody up here is saying that's a good idea. But it could be by day part. It could be by day. That's something that the industry has been doing forever. Restaurants have had lunch menus and dinner menus.

11:11
Ashwin Kamlani
Granted, they've been static. We all know that. There have been happy hours. Right? But that's also kind of a static concept. What we're all saying I don't want to say what we're all saying, I think some of us are saying here is that using data to determine exactly how to do that correctly in a more dynamic environment is the right thing to do. Now, that requires a bit of a mind shift in the minds of restaurant tours. I think what we've seen so far is the mentality is, well, based on my cost, how low am I willing to go? And what I think restaurants do need to start thinking about is, well, actually, what can I charge? What's the customer willing to pay? And I think that's one of the things that a lot of other industries have started to do. Now we at Juicer are anti surge pricing.

11:56
Ashwin Kamlani
We do not think that's a good idea for our industry. And we think that it's a bit dangerous to focus on your short term profit. How much more can I get in the next four to six weeks? If that's going to potentially result in a decline in four to six months, you have to think about the lifetime value of the customer and if what I'm doing is going to result in those people not coming back. So you can't think of these things in isolation.

12:21
Tom Kaiser
Well, Ashwin, so much of the conversation of dynamic pricing is focused on the off premises orders as opposed to dine in. Why is that? I mean, I assume there's some technological issue related to, like, menu boards and such, but why is the focus on delivered orders so much?

12:42
Ashwin Kamlani
I think that was the right place to start because this is a data driven activity. It's based on ecommerce transactions, and that's where the digital orders really were concentrated. But there is going to be a bridge, I think, from the off premise and delivery side into more on site. So we're already doing pilots in stadiums, and we're talking about doing things in movie theaters with concessions anytime where there is an individual transaction. Even QSR fast casual. Somebody walks up to the counter, makes AI, transcription, sits down, versus having a check that's open for half an hour or an hour, which creates additional complexity. One of the interesting things that happened last week that I think probably is on the minds of a lot of people in this room is that DoorDash started a very dangerous game of chicken with the restaurant industry. Now, it's going to be interesting to see how that plays out.

13:44
Ashwin Kamlani
Now they're, I think, taking their playbook from travel and hospitality. But this is not travel and hospitality. Restaurants don't have the same margins that hotels do. Hotels were already paying 25% to 30% before Expedia came along. It was just a different player. And without getting into too much detail, I think what that what upset them was that Expedia was then taking all that margin and using it against the hotel to steal their direct business to try to compete with 20 other companies. Now, restaurants don't have that kind of money to give out. But the reason I'm bringing that up is that if restaurants do start to think about keeping the same price everywhere, that changes the game. And now it becomes even more complex to figure out what the ideal price is. If you can't differentiate your prices on different channels now, I don't think that's going to happen.

14:28
Ashwin Kamlani
I hope that doesn't happen, and I doubt that's going to happen for a variety of reasons, which we can get into. But I think the lines between what you're doing off premise and on premise could start to blur.

14:39
Tom Kaiser
Well, I want to go off script a little bit because I'm really glad you brought that up. Ashwin. That's something that I have not officially confirmed with DoorDash. That they're requiring restaurant brands to charge the same for dine in as they do for delivery. But at Food on Demand at this conference, that's been a huge part of the solution for the industry of how do you make peace with the delivery side of your business and all the associated costs. Well, you raise your prices on your delivery channels and you make that up. I honestly cannot imagine what that is going to mean for restaurant operators if that strategy is no longer available. And again, I have not officially confirmed that. But I think it's worth going around the table for what everybody thinks about that because I'm sure you're all very familiar with this debate and whether this is actually happening or not, I've seen evidence that it is.

15:29
Tom Kaiser
Sherry?

15:29
Sherri Kimes
Well, I mean, first time I heard that restaurants could charge different prices on different channels was at the Fast Casual Summit three and a half years ago in Austin. It was pre COVID. Funny how we've kind of changed our time frames. I just about fell off my chair because in the hotel industry, you cannot do that. I mean, by law, but by contract with the online travel agents or the OTAs, hotels have to have the same price across various channels. And Ashwin, you were saying the hotels were used to paying 25% to 30% only tour operators, and they complained about that like crazy. Travel agents? More like eight to 10%. And the hotels hate it. Now, it's illegal in some countries, it's illegal in Australia, it's illegal in the Scandinavian countries, but in the US. And the hotels okay. And so, okay, I book a hotel for $200 on Expedia.

16:22
Sherri Kimes
The hotel is getting the hotel is probably paying 25% on that, and then it just drives them nuts. Now, what do they do about it? Well, I mean, they b**** a lot. They b**** an awful lot. And I'll tell you one funny story on that. I was doing a study on the future of hotel revenue management, and I was working with SAS So, this software company, and they had two qualitative Data scientists who were analyzing the comments, and there were a lot of comments and they didn't know anything about the hotel industry. And we had our first phone call, like a debrief, and they said I said, well, what did you get out? We said, we don't know who these OTAs are, but people really hate them. I said, okay, you figured it out, but what do they do? Hotels leverage their loyalty program because what they're trying to do too, is they want first party bookings.

17:16
Sherri Kimes
Right? They're just like us. So they're used leveraging their loyalty program. They don't put all of their inventory on the OTAs, so their suites might not be on there. There might be other bennies that go on that they might offer through a direct booking. And basically what they're trying to do is convert it's exactly the same thing. They're trying to convert them to first party. Now, how successful have they been? It's mixed. They'd like to get rid of the OTAs, but really it's one of those love hate relationships. They need them to fill their hotels. It's a different cost structure. Like Ashwin was saying, it's a different capacity model, but they've had to learn how to deal with it. And I think it's something that we could all say, no, we're never going to do that. It's something to think about. But at the same time, even if it doesn't happen, what can you do?

18:16
Sherri Kimes
It's always about what can you do to get people to book, I mean, to make their reservation, to place their order directly with you, make it worth their while. And Andrew, you kind of alluded to that during your presentation earlier today.

18:30
Tom Kaiser
Well, Colin, Michael, do either of you guys have any thoughts about what colin, why don't you just jump right in?

18:36
Colin Webb
Sure. Every restaurant that we work with now, and Restaurant Group is on, they have their own first party ordering, they have third party ordering, they have in store. You have all these different platforms. And so similar to how the industry adjusted when delivery became such a critical part of their business, or at least third party platforms became such a critical part of the business. We're seeing the same things when it comes to dynamic pricing strategies. And I would say, ashwin mentioned, it's not necessarily a search pricing approach that folks are taking, but it's a dynamic approach where at some points it may make more sense to have pricing go up on a third party platform. At some points it may make sense to drop that price on a third party platform, or to drop that price on a first party platform in order to incentivize orders.

19:21
Colin Webb
And I think we're seeing restaurants think about that. This is the Omnichannel panel here, an omnichannel type of approach when it comes to pricing. Because ultimately, especially within a marketplace platform, every restaurant is part of an ecosystem now where they're operating like an ecommerce company, right, where, you know, you might have 20% of the people that come to your page on Uber, Eats or on DoorDash actually go through to make a purchase. And so if your goal is converting them to first party at the end of the day, well, how can you possibly get the 80% of people who don't make a purchase to actually go and make their first purchase? While also at the same time having a strategy with the way that you prepare your orders, the way you communicate with customers to bring them into first party. And so we're seeing restaurants take that dynamic pricing approach to be able to draw people in on these essentially marketing tools that the third party platforms are starting to become and then taking a separate dynamic pricing strategy or approach for their first party sales.

20:25
Michael Lukianoff
Yeah, I just like to make a comment though. I get that there's ways that restaurants are acting like ecommerce, but it is such a different industry and not just in how it acts, but legally. Right. And coming back to what Sherry was saying in terms of the legal structures, franchiseors cannot tell franchisees what their prices are. And an Ota is going to come in and say you have to have rate parity. Now think about this for a second. You've got a franchisee, two different franchisees a block away and you're going to say that when they are offering delivery through the same platform, they've got to have rate parity. How do you enforce that? Well, the franchise or if they just try to enforce that, then they've got a class action lawsuit on their hands. So let growpub get in the middle of that class action lawsuit, right?

21:26
Michael Lukianoff
Because they will because it's called price collusion, right. So they can get in the middle of that hornet's nest and that'll be the first time that the franchise, Ore is going to be encouraging the class action lawsuit, right. So those days will be coming. The other thing that I think we need to think about is that the consumer, right, and this is just the data speaking. What we've seen over the past several years is the consumer has spoken through the metrics and said, I am willing to pay more for delivery. Now we've seen it. And Ted at Fishball, you measure this every single day, right? You're measuring channel price elasticity. What do the numbers tell you? Can you charge more for delivery than you can for in store?

22:12
Tom Kaiser
No question.

22:14
Michael Lukianoff
Seen the same numbers. You can charge more. There are limits to it. Absolutely right. It's not endless, but you can charge different prices for different channels. The numbers are telling us, the consumers are telling us. So an Ota is going to come in and tell you that you can you're battling the data in ways that you shouldn't be battling the data. The economics have actually allowed the economics need to work for all of the parties involved. And if the economics don't work, then the whole value chain is going to fall apart. The value chain didn't fall apart because restaurants were able to charge more for delivery and third party, if that goes away, then the whole value chain falls apart and it's not going to work.

23:02
Ashwin Kamlani
Can I just make a comment here? I don't think DoorDash can actually do this very long because if restaurants don't comply, they're balancing a battle to get better pricing with the customer experience. So if you put yourself in DoorDash's shoes, you have a situation where the customer is going to come into DoorDash to look for a particular restaurant, and they're going to have a tough time finding that restaurant. That's a bad customer experience. Imagine for a second if major brands that are loved by customers, PF. Changs, you know, all the names were to say, you know what, thank you very much. We're pulling off of DoorDash. Now, what's going to happen? If I were Uber, I'd be throwing a party over this. Because what's going to happen is if I go to Expedia and I want a Hampton Inn and I don't see it there, I'm going to think, yeah, they're probably sold out, whatever.

23:49
Ashwin Kamlani
I'll just stay at the Hilton Garden Inn. If I want PF. Changs, I'm getting PF. Changs. And if I go to DoorDash and it's not there, I'm going to PF. Changs or I'm going to Uber to get it. So it's easy to get emotional over what's going on. But I think you have to put yourself in the shoes of the customer and think about what the end goal here is in the hotel industry. What we saw is that the big chains got out there, started to educate the consumer that they should come direct. They were national television campaigns. Hilton launched a campaign called don't click around. Stop clicking around. The whole goal of that was to say to the customer, come to us. You're going to get a better deal. Join our loyalty program, log in, and you'll get a better price. So it's going to be very interesting how this all plays out.

24:37
Ashwin Kamlani
And I think restaurants actually have a lot more power and leverage than you might think.

24:42
Sherri Kimes
And I think, too, you can learn from the hotel experience because if you have friends in the hotel industry and you probably do, tell them, hey, look at hey, DoorDash is thinking of talking about doing this. And the hotel people go, oh, yeah, we've been on that show before. And just ask them. They've tried this ashwin don't click. And I was talking to one of my friends who used to run revenue management for Marriott, and I said, well, how successful was your campaign went? Because they still run into I think they got maybe 40% or something like that. We're booking direct, but there's the convenience factor associated with the Ota and also with the DoorDash and Uber eats of the world. And so I agree it'll be very interesting to see how it plays out because we don't know, but we can learn from other industries on how it worked.

25:38
Tom Kaiser
Well, I appreciate all of you weighing in on that because if this really does come to pass, I'm going to be typing a lot about that topic this year. And we're all going to be talking about it, but I want to zoom back out a little bit more. And Michael, I want to stick with you. You told me a while back that kind of the more normal historical types of pricing models just don't work in this current environment. And I guess that's not very surprising. We all know that this is a unique moment in time, but there's the clear numbers that inflation in the United States is easing. But as you pointed out to me, the restaurant consumer price index is not easing at the same rate. And so I'm wondering, what do you think that means? I mean, do you think that inflation in our category, in our industry is going to get better, or do you specifically think it is not going to get better?

26:33
Tom Kaiser
Because it hasn't.

26:35
Michael Lukianoff
Well, I think that one of the things that we need to realize about recessions and economic slowdowns is that we sort of think about a recession as like sort of this announcement that, hey, it happened, right, and it's like this delineation in time, but it doesn't work like that, right? Sometime in the future, somebody will say, hey, the recession happened and it started sometime back then, but really it happens very locally, right? And in some places across the country, it's already going on, right? And it starts in local communities and it sort of works its way up and out. So there are restaurants, there are communities, and they're already struggling, and there are other ones that are in boom times, right? If you happen to be in a community that was the beneficiary of a new migration and you're in a full service restaurant where everybody moved out of New York City or San Francisco, and there's a shortage of full service restaurants, there's going to be years before there are new seats built in your community.

27:50
Michael Lukianoff
So you may be having a great time for some time to come, and you're going to have pricing power. So it's not like it was. I don't think we're going to have the COVID meltdown or the 2009 banking crisis meltdown. Most recessions are sort of slow motion car crashes, right? They just sort of happen very locally. And you really need to be able to monitor what's happening in your community and take the adjustments and really pay very close attention to what's happening to your consumer. Notice what's happening when they're trading down, right? How are they managing their check? Because what you see with the national headline is not necessarily what's happening in your community, to your restaurants. So you need to be very aware of what's going on there, because when you start losing your customers because you've gone over too far, it doesn't necessarily mean that the same thing's happening nationally or to the guy next door.

28:52
Tom Kaiser
Well, Michael, I want to stick with you if you need a sip of water, but you've recommended that brands look at basket elasticity rather than individual menu. Items when they're trying to determine how consumers are altering their behavior right now. I think it's worth settling in on that for a moment. What does it take to analyze that? I mean, what does that look like from a restaurant's perspective?

29:16
Michael Lukianoff
Michael yeah, it's a tall order, I think, for a lot of restaurants. But the more traditional, say, metric of sort of measuring how price sensitive, say, a restaurant is, would be saying, okay, as my price goes up, am I losing traffic count? That's a difficult thing to happen when the demand sensitivity or say, the traffic patterns of your restaurants has been really volatile because you don't necessarily know, is my traffic up? Because just demand patterns of COVID or demand patterns of my local community or different migration patterns happening for the consumer or work from home is changing. There are so many different factors that are going on that haven't stabilized yet. The one measure that you can track now is understanding what's happening with the actual purchase behavior of the consumers when they're coming in. As I change my prices, are people managing their check?

30:22
Michael Lukianoff
Right. That doesn't change. People before they check out of your restaurant and decide not to come back, they start adjusting what they're buying. And you can work with somebody like me or like Ted or like RMS or one of these other guys to measure it for you. Or you can adopt some very simple metrics and start saying, what's in a typical basket? Are people dropping the beverage? Are they dropping the side? What are my typical baskets? And are they managing that check? And if you can look at that very early in the purchase cycle and say, well, if they are managing the check, what are those actions that I can take? Because that is a leading indicator. Stop managing your business on lagging indicators. Right. A lagging indicator is saying, oh boy, I lost traffic. Oh, boy, my profit's down. Not much you can do after that kicks in, right.

31:22
Michael Lukianoff
Start managing on leading indicators and saying, hey, there's, check management happening now. Before I start losing my traffic, let's figure out what sort of marketing initiative. Let's figure out how I get these people to come back in before I've lost them for good. Right. Because that's the leading indicator that's going to stop you from losing these people before you've lost them altogether.

31:45
Tom Kaiser
Yeah.

31:45
Colin Webb
And I would add to that in terms of leading indicators, check management was one of the first things that we studied when getting started with sauce, particularly looking at, on an item by item level, which items in your menu have a higher retention than other items? And it's an interesting question because it's not necessarily the most popular items on your menu, but which chicken sandwich on your menu that if somebody buys, are they 70% more likely to come back and buy again from your restaurant that may be different from your most popular item on your menu. And we found that for dynamic pricing strategies, you can actually do things where, let's say, you may provide an incentive for people to order that particular item or provide a discount on that particular high retention item. Maybe it's only 15% of your menu items that are these high retention items that can actually get people to order more overall.

32:42
Colin Webb
And it's the same approach that Amazon has when it comes to their pricing as well, where everyone feels like Amazon has the cheapest prices across the web, when in reality, it's not the case. They're changing prices millions of times a day. And what they're doing is they're essentially decreasing the prices of items that you could probably find anywhere, while increasing the prices of items that you don't know where else you could find them. So you may actually be paying more on Amazon for something that you could get somewhere else for cheaper, but you feel like you got everything on Amazon for as cheap as it can be. And so there's a psychology approach to pricing. I would say another leading indicator that we've been really focused on are things like conversion rates. So because you're on these third party platforms now, to my comment earlier on restaurants being ecommerce companies, you now have a conversion rate, right?

33:33
Colin Webb
A click through rate. How many people are actually going and buying from your store when they look at it? It's not everybody. It's a small fraction. And so how can you use pricing as a way to increase that and get more folks to order and get more customers to come back? And so there's a lot of indicators that are really important to look at.

33:52
Tom Kaiser
Well, I want to move into the speed round, if possible. I don't think there's a single question in my notes that can be answered quickly. So there's an inherent contradiction there. But I really want to try to cover as much ground as we can. Ashwin, what are some points of resistance you hear from restaurant operators, executive teams when it comes to dynamic pricing? As quickly as we can.

34:16
Ashwin Kamlani
Yeah. And look, it's really fear of the unknown. What we hear is, well, this has never been done, and I don't want to be first, and let's see what other people do, and then when we see the results, maybe we'll do it. The funny thing is, restaurants have been doing dynamic pricing forever. It's just been on the downside. It's like discounts here and LTO is there, but for some reason, there's this, I don't know, allergy against doing it to the upside, even though when you look at the DSPs, they've been doing it since the beginning of time. When things are busy, they're charging more, they're just doing it on their delivery fees. And so why shouldn't the restaurants take advantage of that? So we're trying to shift some of that power back to the restaurant. The other thing I would say is that there's a bit of a fear of, well, I've got a lot of things going on, and I don't have people or time or staff to handle this.

35:02
Ashwin Kamlani
And that's why, at least at Juicer, we're trying to provide a full service solution. The restaurant doesn't have to do anything. It's completely automated. At this point where we take the historical data, we run the analysis, we actually come up with the new pricing strategy, implement that into the POS, monitor the sales, optimize the prices, and then just tell the restaurant, here's how we did and what are the guidelines we're working within. And it's very little lift on the side of the restaurant. In fact, right now, we're seeing about a 7% lift for off premise revenue. In fact, we're offering a guaranteed four to one return on customers that sign with us this quarter.

35:37
Tom Kaiser
Well, it's fascinating. It's been fascinating for me to learn both how you guys at Juicer and Sauce, how much technology and knowledge goes into how you're setting prices. I mean, it's not a data based version of making gut level decisions. It's so complex. It's very interesting. An eye opening moment for me, and I'm sure this is like level one eye openers for you guys, but happy hour is dynamic pricing, and that's not a bad thing, right? And that's not raising your prices. That's lowering your prices to spur demand. And I think it's really important for folks who are new to this topic to realize that it's not just something that might have an inherently negative connotation. It can be a net positive as well. But, Sherry, I want to move to you because in our recent conversation you said that it seems like QSRs and Fast casuals might have the most to gain with the new approach to pricing.

36:33
Tom Kaiser
I'm not sure if that's an accurate translation, but I'm wondering how you just see all of these pricing topics differing depending on what type of restaurant you are or even thinking of a virtual brand.

36:45
Sherri Kimes
I don't really see much difference because you've got the different menu items, you've got the price elasticities and then so forth. And then one thing I do, two things I want to bring up, and I'll be fast. Happy hour. One of the ultimate questions I was ever asked was by a guy. Some of you may know him, Eli Chait. He was with OpenTable. He's a multiple restaurant tech entrepreneur. He called me one day and said, how do you design the optimal happy hour? I said, wow, what a great question. I have no idea. But that's essentially what we're talking about. The other thing, and this is kind of alluding to something that Colin Saucepricing.com to me, the math is the easy part. That's super easy. It's the psychology of it. I'll change the numbers on this, but pricing is probably, I would say, 60% math and 95% art.

37:35
Sherri Kimes
And yes, I can do math. And so the positioning and all of that is as important or more important than the technology behind it. And this is something too, that in the hotel industry. The hotel industry, when I tell I said, well, you set your prices. Hotel industry does not set their prices optimally. They might have one price that's done optimally. The rest of it is all with positioning, but they're managing their supply as well. So they're looking at opening and closing rate categories, but it's having to do with blocks of inventory of rooms. But it's something. But don't forget about the psychology of it, because that's where some of the resistance comes from, is how are we going to position this to our customers?

38:20
Tom Kaiser
Well, I want to ask one more question and then I want to see what questions you in the audience have. But Michael, I want to throw one more your way. You have told me that data you've seen shows that brands that are charging more on the third party delivery platforms, that's driving more price sensitive customers from delivery and apps to in store dining. I mean, I think that's what every restaurant would want to hear. What's the evidence that supports that?

38:49
Michael Lukianoff
Yeah, so, roundabout, when COVID hit, I changed my whole approach to pricing. And instead of starting with the point of sale data to build the models, I started with mobile data first. So understanding first how people are moving through the communities so that I would know who's coming into the restaurants and really understanding the demand patterns first, and then putting in the point of sale data to see the purchase behavior. So that started opening up a different world of understanding how people were reacting to prices. So in doing that and plus also credit card behavior and so forth, so it gave me a holistic understanding of what these behavior patterns were. So in being able to do now, price elasticity, price resistance by channel, I've been able to see that as people are reacting to price changes by channel, how is that changing over time?

39:50
Michael Lukianoff
And what I've seen in a number of different concepts is that while delivery and third party channels were definitely showing that they were able to increase their prices, there's a limit to it. And as the prices started to go up, the lower income consumers started to fall out faster. And those were the consumers who were coming back into the restaurant more quickly. And that's not just anecdotal right. We could actually see that those were the people who are flowing back into the restaurant. So that's not just speculation. Right. That's what we actually saw in the data.

40:27
Tom Kaiser
It's unbelievably interesting. Thank you so much. Does anybody have any questions in the audience? If so, raise your hand and we'll run a mic your way. Nico, Rachel's got you here.

40:39
Speaker 6
Thanks, everybody. Thanks everybody. Sorry I was late. Happy to be here. Learning a lot already. I have a comment and then two quick questions. But the comment is happy hours also price increase, right? At 701, the price goes up. So clearly customers already are literally already okay with paying more for something than it costs 1 minute before you buy a nice jacket online. The sale is over, the sale is gone. Now suddenly it costs more, right? So discounts still have to revert back to the median, right? I love this panel. I love this topic. So yesterday Savnet was on stage with Noah Glass and a couple of other folks, right? Really interesting conversation, I thought. And one of the things that Savnet talked about was in the post COVID era, right? Everybody layered, everybody operators layered on so much technology, so many additional layers to the onion.

41:31
Speaker 6
So in this fractured data environment that restaurant operators live in today, which was already fractured pre COVID and is way worse now, how do you guys and this is really for sauce and juicer specifically. So A, how do you guys overcome that? Because there are different elasticity tolerances to different channels, to different customers and such. So I'd be curious to know how you can coach operators and work within that challenge. So question number one, and then question number two, and in a way, does that even matter? Or is it all just kind of like there's already so much opportunity that maybe that doesn't matter yet, so crawl, walk, run, maybe. But that's question number one. Question number two for Michael. So if you're focusing more on basket than individual items, which I'd probably tend to agree with for whatever that matters, but how do you identify or how could you coach a customer or operator to identify trade down within a basket when you don't know the customer?

42:32
Speaker 6
If you know the customer, you can much more clearly identify trade down. But in a basket where it's just somebody coming in, new user, no account, et cetera, how could we start to understand trade down within that basket if the transaction is still happening? So sorry for two questions, but that's fine.

42:49
Sherri Kimes
Cool.

42:49
Colin Webb
I can address the question around just kind of this platform infrastructure, right, when every restaurant is on all these different platforms. That was one of the first things that we encountered in the space when were first getting started. And that was initially our focus from the very beginning was, okay, can we identify the problem being able to maintain strong margins amid this omnichannel world? But then also can we build the technology first? So we did that before we did any marketing or any sales. And so for a restaurant that's on a range of platforms ranging from your middleware aggregators like your Olo, or your Chowley or It's Checkmate, or your delivery platforms, or for POS Systems, we've made the process literally a less than ten minute process for you to onboard. In fact, if someone's using Olo, for example, all they have to do is go into the olo portal and click sauce, right?

43:44
Colin Webb
And so it's like already integrated within the existing stack. And so our restaurants onboard, like was mentioned earlier, we are able to automatically pull in that data, populate existing pricing strategies based on your data that a restaurant can press play on right away. And actually all of our enterprise pilots that we've done this year have yielded over 10% return on revenue, right? And so 10% increase in revenue by being able to just literally press play on smart pricing strategies. Plus the ability of being able to create your own custom strategies if you wanted to tweak and adjust things all within existing platforms has been a super easy lift for each of our operators getting on. And it's something that some of our operators don't even have to tell their managers of the stores that they're going to try dynamic pricing because it's like your systems continue to run as normal.

44:36
Colin Webb
And so that was our focus from the very beginning.

44:39
Ashwin Kamlani
I don't have much to add to that except that to your point about training the operator, if the operator wants to know how we're doing things and how it's all being done, that's fine. But we try to really take the load off of the operator and do everything behind the scenes. To Colin's point, it's all about integrations, right? So complete two way integrations with checkmate and official partners of Oracle and things like that. I mean, the interesting thing is that to your point, nobody anticipated that a third party would want to come into a point of sale system and implement prices. And so those APIs didn't really exist until now because thanks to the operators and restaurants have gone to those platforms and said, hey, this is interesting and I really want to do this. And so the operators have been coming to us and saying, hey, our operators are asking for this and there's no way we're going to build this and so let's build an API so that this can all work together.

45:29
Ashwin Kamlani
And that's exactly a year ago I think I was on, I don't know, it wasn't this stage, but another stage where I said we have to stop giving the restaurant tours all these puzzle pieces that they have to put together. We need as an industry, the tech industry, to put that puzzle together and give it to the restaurants so they don't have to worry about it. And that's exactly what has happened. I think the last thing I would just say there is you can't think about price in isolation. That's what I said earlier. So we're taking a very careful approach to this. And aside from just data around prices and elasticity and things like that, we're also monitoring guest reviews and star ratings to look at what the guest sentiment is doing and making sure that's not being negatively impacted. We're also looking at the restaurant's competition which I've heard over and over again, they spend hours doing.

46:14
Ashwin Kamlani
So we take all of that on in an automated way and say, just tell us who your four competitors are and where you want to be positioned, and we'll make sure we take that into consideration. So we're really taking all of that burden off of the restaurant.

46:26
Tom Kaiser
Michael, part of that was for you.

46:28
Michael Lukianoff
Yeah. When you're doing a basket analysis, you want to make sure that you're analyzing at the level that you're going to implement it. Right. So if you know that you're going to implement a pricing or a bundle that's going to be available to all of your customers, then you actually want to aggregate it to the level of your customers. If you're going to do it that's targeting, say, a specific group of customers, and you want to make sure that you're grouping it to the group of customers, it's unusual that you would be saying, I'm going to create a bundle that's just for you. Right. So you wouldn't necessarily be doing the analysis that's just for you. Does that make sense?

47:03
Tom Kaiser
And then we have one more question down here, and unfortunately, this is going to have to be our last mine's real quick.

47:08
Michael Lukianoff
For your restaurant clients, outside of LTOs.

47:13
Tom Kaiser
And dynamic pricing, do you ever recommend them to take down their price on menu items?

47:18
Michael Lukianoff
I think that's a really important question because I think and I've been thinking about that as some of these questions have been coming back and forth in the restaurant industry, and this doesn't apply for all industries. A passive price decrease is not going to bring back customers who have left. A passive price decrease for your captive audience, people who are already in might drive people into the item when they're there. Right. Or if they're already going online, then it might drive people in who are already going to purchase. But if you've increased your prices and you've lost customers, you're not going to bring those customers back in by decreasing your prices. All you're going to do is reduce your profit and sales for the people who remain your customers. So that's some of the danger. And that's one of the things that I'm worried about right now, with people saying, I've got no price elasticity.

48:18
Michael Lukianoff
I'm going to keep jacking my prices up. Right. In restaurants, once you lose those customers, you've got to be very loud about whatever your price decreases are in terms of promotion, or you've got to be very specific. You've got to know, where is it that I've lost those customers? And you've got to be very targeted. You got to go back and find them. Right. So whether that's linking to your CDP, whether that's expanding your reach through other marketing channels, and it's very different from other industries, right? Because if you look at hotels, what is it? 20% of people will tell you that they stayed in a hotel over the past year, but we measure restaurant visits as how many times have you gone to a restaurant in the past month? Right. This is very different industry.

49:05
Sherri Kimes
But just a quick thing on that. You're assuming, Mike, that the prices stay the same all times a day. They don't have to. A price decrease during certain times of day or certain days of week can work. That's something that we need to be considering. It's back to the question of what's the optimal happy hour, but I think.

49:23
Ashwin Kamlani
We need to get away from blanket increases or decreases. Right. Just decreasing your prices at certain times of the day is going to cannibalize your existing business. Right. I think what we're going to see happen is Uber and DoorDash Grubhub are going to they've said this publicly in their earnings releases. They want to become more media companies. And that means that restaurants should have the opportunity to spend some ad dollars there and say, hey, I want to launch this really great promotion between these times because that's when I need the business. They have the voice to the customer. They should be able to move the needle during the times when you really need the business, but they're going to have to build good relationships with the operators if they want you to start spending more of your dollars on advertising with them. So we'll see how that plays out.

50:05
Ashwin Kamlani
And then again, I think to what Colin said earlier, decreasing certain menu items at certain times, if you can measure what the impact is on other menu items, especially when you start to take profitability to the product level into consideration, that's when this gets really complex and interesting for the restaurant. So how do you get the optimal price for each product on your menu, for each channel that you're working with, for each location at any given time, up or down? That's what you need help with?

50:33
Michael Lukianoff
Yeah.

50:34
Tom Kaiser
And it's not just I apologize. I need to jump in. Guys. We're a little over on time. I just want to say I have honestly learned more from the four of you than anyone else since the last Food on Demand conference. It's a real honor that you guys are here, but part of the point of a conference is to connect in person. So I really hope you do because I know a lot of you had questions, but please give them a round of applause.