Can Yield Management Change the Future of Food & Beverage industry?
Yield management will encourage restaurants to be more competitive in the services they offer, cutting through the clutter of competing restaurants
In the 1960s, American Airlines began researching yield management, a variable pricing strategy intended to anticipate or influence consumer behaviour to maximize revenue from a fixed resource.
Some 30 years later, the hospitality industry followed. Hotel room prices and airfares change according to demand. If demand is high, especially on long weekends or public holidays, prices go up. Conversely, when demand is low, prices drop to attract more consumers to make purchases during a low-peak season.
Such yield management systems have been around for almost six decades, but it is one that works even today, with start-ups like AirBnb and Uber finding success with similar dynamic pricing models.
A win-win-win Situation
Similar to the aforementioned industries, F&B establishments, too, face similar problems of experiencing lull periods in between meals and high demands during traditional meal times, sometimes to the point of restaurants having to turn diners away when they reach maximum capacity. This affects the eatery’s potential for profit making.
The answer? Shifting some of the high flow during peak periods to off-peak hours to maximize profitability that otherwise would have been neglected.
Identifying this as an immense opportunity, many companies built their businesses on the premise of offering consumers time-based discounts. By adopting the principles of yield management, restaurant reservations apps give diners reasons to make changes to their usual eating habits, which, in turn, helps them benefit from attractive cost savings, and helps vendors fill empty tables during off-peak periods and generate additional revenue.
In fact, research shows that the current global dine-in market is worth about $2 trillion, but has the actual potential to rake in an estimated $590 billion in added revenue if it were to incorporate yield management practices into its day-to-day operations.
How Will This Change the Way Restaurants Operate in the Future?
Besides financial benefits for both vendors and consumers, yield management will also encourage restaurants to be more competitive in the services they offer, this being the only way in which they can cut through the clutter of competing restaurants vying for their customers’ attention.
The competition is getting stiffer by increasing prevalence of food technologies, like restaurant reservation apps that make it easier than ever for consumers to make on-demand decisions anytime and any place.
On the topic of technology, services driven by yield management will only get smarter, more personalized and more relevant as technologies, like Machine Learning and Artificial Intelligence (AI), become more infused with mass consumerism.
Yield management also aids restaurants with better kitchen planning, reducing ingredient wastage. This allows them to manage their fixed costs more efficiently, especially when costs for rental, manpower, electricity, and utilities are still incurred during off-peak hours.
Yield management has proven to be incredibly successful thus far. Expansion may be a solution for restaurants constantly faced with overflowing capacities during peak hours. It is, however, costly, risky and extremely time-consuming to plan. Perhaps the faster and more foolproof solution would be to leverage yield management initiatives to maximize their resources and profits and set itself for success in the long term.
Siddhanta is currently the Chief Financial Officer of eatigo International Pte. Ltd, the leading online reservation platform for restaurants across Southeast Asia. It aims to connect empty tables with empty stomachs, through time-based discounts with the help of yield management algorithms. Being an adrenaline junkie, he loves to go sky diving and scuba diving in his spare time.