Happy Hour is dead, long live Yield Management! 🎉

Yield management is a practice that originated in the 1980s. It started in the aviation sector in the United States before spreading to the hotel and leisure industries.

It is based on a simple observation: in sectors with high fixed costs, during periods of low attendance, it is better to sell an additional product at a reduced rate than not to sell it at all.

For example, in aviation, the main costs of a flight are the plane itself, the fuel and the personnel, so it is more interesting to sell an additional ticket at 30% off than to leave the seat empty.

With the advent of technology and data, the concept has evolved to take into account more and more parameters: real-time demand, the cost of an additional sale, production capacity, brand image and competitors' practices. The final goal is to be able to determine the best selling price at each moment in order to maximize profitability.

If we were to summarize its concept in one sentence, it consists in setting up a dynamic pricing strategy which adapts in real time to a multitude of parameters with the main objective to optimize the merchant's profitability.

For Yield Management to be beneficial to an industry, three essential ingredients must be present.

     1. The importance of fixed charges.

Just like aviation or the hotel industry, the restaurant business is a service business. And when you think of a service business, you often think of high fixed costs. In fact, if we take a closer look at the costs of the sector, we notice that the "operating costs" (rent, electricity, personnel, service providers...) represent a significant part of the costs of a restaurant and that the only way to amortize them is to bring in sales.

2. The low marginal cost of production.

This means that the sale of an additional unit should represent a relatively small additional cost to the merchant.

In the case of a restaurant, when it is open and has a margin in its production capacity (available staff and stock), producing one more unit usually only involves the cost of ingredients and packaging - on average 30% of total expenses.

     3. Variation in demand.

If some restaurant owners receive more people at lunchtime, others work better on the evening service. Similarly, if some work better during the week, others receive more people on the weekend, etc.

The high and low points of a restaurant can vary not only from one period of the week to another, but also during the same day or during the same service. Each restaurant has its own specificities which are often linked to parameters such as the type of restaurant, the geographical area, the events in the surroundings, etc.

The concept was first introduced in Parisian bistros in the early 19th century. They had the brilliant idea of setting up targeted discounts during low-traffic periods (before dinner), with the aim of attracting customers directly after work. You will have recognized it, it was the birth of the famous Happy Hour.

Although the Happy Hour has quickly become so successful that it is now known throughout the world, its practice has always been limited by important logistical constraints.

Restaurant menus have been static for a long time (paper or billboard) and therefore, difficult for a restaurant owner to constantly adapt his prices as hoteliers around the world do easily on online sales channels (booking, expedia etc.)

However, the sector is evolving, becoming digitalized and COVID19 has been there. Various studies show that it has accelerated the development of the restaurant sector by 5 years.

• Delivery used to be reserved for restaurants with their own fleet of delivery drivers is now open to all with platforms such as Deliveroo, Uber Eats etc..
  
• The takeaway has been transformed with the rise of Click & Collect. Consumers are getting used to anticipating their consumption a little more.
  
• On-site sales are becoming increasingly digital: reservation site, order terminal, Order & Pay application...
  

These new consumption methods have many advantages: they facilitate order taking, promote additional sales and save considerable time for both restaurant owners and customers. But above all, they are a great opportunity for restaurants to gain flexibility in their pricing strategy. They can now push a promotional offer in a few clicks and new possibilities are opened to them...

We have listed 4 main reasons why any restaurant should practice Yield Management:

• Visibility gain ‍

As the competition on the online ordering platforms is getting stronger and stronger, the implementation of promotional offers on certain cleverly chosen niches allows to obtain a considerable gain in visibility.

Indeed, whether it is Deliveroo, Uber Eats or TheFork, the platforms have to continuously attract new consumers and the promotional offers made by their restaurant partners are for them a strong argument to encourage customers to come to their site. Their algorithm automatically highlights restaurants offering this type of discount.

• Acquisition of new customers

An estimated 7 out of 10 delivery orders go through online ordering platforms, and together they rack up nearly 10 million downloads of their apps in France. This means that restaurateurs have a "near-infinite" number of new customers just a click away.

On average, at Flynt our customers double their new customer acquisition after a few weeks of use.

• Optimize your profitability

Just because a restaurant owner can vary their pricing strategy based on different times of the day or week, it allows them to consider a multitude of potential strategies.
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The equation is simple, as a restaurant owner I know that :

- The stronger my promotional offer will be, the more I will increase my visibility/conversion rate and therefore my order count.
- Conversely, the less strong my promotional offer will be, the lower my visibility/conversion rate as well as my demand.‍

💡 The important thing is to apply the right strategy at the right time to always tend towards its maximum production capacity (and thus come to amortize the fixed charges).

Here are some examples of possible strategies:

- Boost low services during the week by putting a bigger promotional offer on them (weekday dinner for example).
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- Intensify orders during the in-between services if staff is still available (afternoon gourmet break).
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- Make offers on the edges of service (11am-12:30pm / 2pm-3:30pm or 6:30pm-8pm / 9:30pm-11pm) to smooth out orders and avoid bottlenecks.
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- Put promotional offers of gradual intensity according to the peaks and drops of orders on a day.
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- Avoid wastage and losses by putting an offer on products with an approaching CSD (use by date).

• Preserve your brand image

There is nothing worse for a restaurateur than to imagine that all the efforts he has put into his brand image could be destroyed by the implementation of a constant generous offer that would suggest to consumers that he cannot sell and even worse, that the quality of his products is limited.

There is a way to avoid this: create unpredictability in the offers made.

The fact of constantly varying the amount or the products concerned by the promotional offer, allows customers to never get used to these offers and not to consider them as their new "standard".

Nothing shocking to see a 5* hotel make a one-off offer of -50%, is there? However, if this same hotel makes this offer all year long, it's another story...

As a restaurateur, here are some of the questions you can ask yourself that will be a good starting point for your thinking:

• What are my low traffic services?
• Conversely, which departments are at my maximum production capacity?
  
• Are there any slots, before or after service, where my staff is present but orders are low?
• Do I have outlets that suffer from a lack of visibility on platforms?
  
• Which promotional offer has the best visibility/margin ratio for my restaurant?
• What is the right promotional offer at each moment that will allow me to maximize my sales without sacrificing my margin?
• What are the practices of my competitors in the area?
  

It's important to take a data-driven approach to building the most effective strategy possible.

In general, we advise you to call on an expert, whether internal or external, who will be able to help you analyze your data and build a strategy adapted to your problems.

At Flynt, we support over 2,000 restaurants and have developed a unique expertise enabling them to gain up to 30% profitability on online sales channels. Visit www.goflynt.io to find out more about how Flynt can help you.