The Terrible Economics of running a Restaurant
A new Indian restaurant had opened within walking distance of where we live. We, actually, discovered it on the day of its inauguration (Muhurta). The owner politely told us to come back the next day. We did. We were fifth in the queue on a long line outside the restaurant. A phone call came in from an acquaintance. The call was a good way to pass an hour-long wait. We would have certainly left the queue otherwise.
As I entered the restaurant, I couldn’t fathom why can’t, like airlines, restaurants charge me more for seating during such peak congestion. The reason most likely is cultural. In many parts of the world, during important days like New Year’s, restaurants have a high cover charge. But still, unlike airlines and car-sharing, they don’t have ongoing dynamic pricing. Somehow, the patrons are happy to pay with their time than with their wallets. And that cultural aspect has terrible economic implications. A line outside might sound great but unlike airlines, a restaurant gets little more than bragging rights due to that.
Today that restaurant stands closed. And I wonder a dynamic pricing model/highest bidder model might have saved that restaurant and millions of others along with it.
2 Replies to “The Terrible Economics of running a Restaurant”
I’ve posed the same question to my girlfriend before. Perhaps a part of this relates to social proof and the restaurant’s desire for long lines as a status signal. Perhaps another part is the restaurants perceived (correct or not) belief that people will be turned off by paying for what they have been accustomed not to have to pay for.
> restaurant’s desire for long lines as a status signal.
Which is weird given that United Airlines would prefer more money that this status signal.
> people will be turned off by paying for what they have been accustomed not to have to pay for.
I understand this but I do find this to be weird too.
People aren’t turned off by 5-10X higher airline prices on travel during Christmas.