Surging wages and digital ordering

Feb. 5, 2014 | by Noah Glass

My last byline asked readers to consider the idea of "surge pricing" — charging higher prices based upon real-time high demand — as applied to the restaurant industry. Using the popular black-car service Uber as a case study, we examined how digital ordering may help restaurants command higher prices for in-demand items.

Because digital ordering provides a systematic approach to order management and production, the interface could benefit the back of the house as well as the front. Not only could demand allow restaurants to set pricing, it also can help operators manage costs.

Consider labor. One of the reasons Uber uses surge pricing is to bulk up its capacity to satisfy demand. You see, Uber drivers are subcontractors who set their own schedules and receive their pay as a percentage of the price that Uber charges riders. In other words, when Uber's prices surge, so do the drivers' paychecks. One driver recently related that he had received several emails from Uber on New Year's Eve, pleading with him to come out and drive that night and luring him with the higher wages he could earn as demand grew.

Let's take that idea and apply it to the restaurant industry. In a perfect world, operators would have the ability to forecast traffic for an upcoming week, just as they planned their employee work schedule. In the real world, however, mercurial external variables like weather can dramatically ramp up demand — and thus your labor needs — from moment to moment, making it nearly impossible to forecast perfectly.

Now imagine a mechanism that could blast out a message to your workforce offering a higher salary if workers could come pitch in during a real-time surge in demand. The combination of digital ordering and surge pricing could make that a reality.

These days, the restaurant industry is embroiled squarely in the minimum wage debate. What if there was a new paradigm for how employees earned a living? Surge pricing could create a scenario in which operators subcontracted trained workers who earned a fixed percentage of sales, just like Uber. Complementarily, surge wages could ensure consistency in an operator's profit margin, while maximizing employee wages and throughput capacity.

Demand-driven pricing, made possible through digital ordering, can manage a wide range of operational or marketing-related issues. For example, why not schedule promotional offers for customers at certain off-peak times of the day, to smooth out the demand curve? Digital ordering allows operators to dynamically offer a customer a 10 percent discount if they come in during off-peak hours. I'm not talking about a pre-meditated Early Bird Special or Happy Hour. I'm talking about a real-time knowledge of surge demand and forecasting excess capacity.

The model works for such online systems as Fandango or OpenTable, which give customers a real-time look at the next available show time or table and only allow those reservations. It may sound futuristic, but the airlines have been doing it for years: encouraging customers to fly at off-peak times with lower pricing to keep their planes filled with "butts in seats." Digital ordering enables pricing to be outlined to the customer while he or she is in the process of placing an order and before the final checkout page of a restaurant's ordering app.

Every restaurant's goal should be to push as much demand through its four walls as possible, every day. Just as surge pricing takes advantage of demand, off-surge pricing offers create demand. Operators with multiple units could also level off demand throughout a city, showing a range of prices at locations across a metro area at different times of day (again, think about flying out of a metropolis like New York City and choosing flights from JFK, LaGuardia or Newark). That may seem silly for an individual order, but it could be meaningful to the operator and the customer in the case of a catering or delivery order in which the customer is less sensitive to which franchise prepares the order for pickup or delivery.

Can you envision implementing surge wages or off-surge pricing offers to improve your restaurant economics?

Noah Glass / Noah Glass is the Founder & CEO of Olo. Since 2005, Olo has helped restaurant brands increase revenue per square foot by delivering faster, more accurate, and more personal service through digital ordering. Today, over 12.5 million consumers use the Olo platform to order ahead and Skip the Line® at the restaurants they love.
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