Restaurant Price Strategies Come Under Fire As Advocates Push to Pass a Credit Card Bill

As restaurants turn to surcharging and dynamic pricing to offset rising operating costs, consumer backlash is raising concerns the practice could negatively affect customer loyalty and ultimately, restaurant profits.

The backlash comes hard on the heels of the Electronic Payments Coalition’s attacks on restaurant surcharges and other price increases. The attacks are part of the EPC’s efforts to defeat the Credit Card Competition Act.

A recent survey by Hunger Rush, a Houston-based point-of-sale software provider for quick-service and fast-casual restaurants, dovetails with the EPC’s claims that consumers are feeling financial fatigue from restaurant-price increases, whether it be dynamic pricing, surcharges or price increases in general. Some 64% of respondents view dynamic pricing negatively, the Hunger Rush survey says. Dynamic pricing is a pricing strategy used to increase or decrease prices depending on the time of day and level of demand.

In addition, 81% of respondents said they would either stop going to a restaurant altogether or alter their dining hours to avoid prices surging during peak hours. And 56% of respondents said they will choose a restaurant with lower fees in the future. Hunger Rush conducted the survey of 1,000 U.S. consumers ages 18 and older in March.

“As we know, the cost of labor, food, and services is continuing to rise at a rapid pace, and all of this impacts a restaurant’s ability to ensure that the customer experience remains top of mind,” Hunger Rush Chairman Bill Mitchell says by email. “Restaurants are continuing to use these fees to cover the increased costs of operations and to ensure that all their employees are treated and paid fairly while providing the highest quality food and service.”

Mitchell adds that the impetus for the survey came after fast-food restaurant chain Wendy’s announced earlier this year it plans to begin testing dynamic pricing.

“We know that customers are willing to pay premiums for conveniences such as delivery because it betters the customer experience, and this survey helped us better understand exactly how and why the customer experience would falter if this pricing model were to be implemented, and in turn, how restaurant operators need to prepare for the changes,” Mitchell says. 

While Mitchell acknowledges that passage of the CCCA will lead to some cost savings for restaurants, it may not offset price increases in such areas of operations as labor and cost of goods. Keeping steady pricing is one way to pass on savings to consumers, he says.

“The passing of the CCCA [wouldn’t] reduce the additional costs currently getting piled on operators,” Mitchell adds. “Our data shows that 74% of diners would continue to dine at a restaurant that does not fluctuate its pricing under any circumstances, including happy-hour discounts. Diners aren’t willing to pay more for their food, so this is an opportunity for operators to really fine-tune loyalty programs.”

Loss of customer loyalty is a risk that restaurants need to weigh when implementing dynamic pricing, Mitchell argues.

“As restaurants test dynamic pricing, they need to consider how it impacts the dining experience, and keep in mind that they will need to make up for the 22% of loyal customers they are driving away altogether,” Mitchell said previously in a prepared statement.

While many consumers object to dynamic pricing and other fees levied by restaurants, 63% of respondents said they are willing to pay a small fee to make up for increased operational costs. Consumers’ willingness to pay higher prices when dining out has its limits, however, as 21% respondents said they are willing to pay a minimal fee of less than 3% of their total visit, according to Hunger Rush.