Dynamic Pricing For Restaurants With Gordon Paterson And Jose Albis

publication date: Oct 1, 2024
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author/source: Jaime Oikle with Gordon Patterson and Jose Albis
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dynamic-pricing-restaurants-gordon-paterson-and-jose

 

AI-powered dynamic pricing is the key to maximizing your restaurant’s profits—are you ready to embrace it? In this episode, Jaime Oikle dives into the game-changing world of dynamic pricing with industry experts Gordon Paterson and Jose Albis from Dynpricing Technologies Inc. Learn how AI is revolutionizing third-party delivery platforms by adjusting prices during peak and off-peak hours, helping restaurants balance demand, improve profitability, and maintain top-quality service. Whether you're curious about cutting-edge restaurant tech or looking for ways to streamline operations, this conversation will give you fresh insights into the future of dining.

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Dynamic Pricing For Restaurants With Gordon Paterson And Jose Albis

Hot topic alert here. In this episode, I get with Jose Albis and Gordon Paterson of Dynpricing about adding dynamic pricing to a restaurant's third-party orders to maximize profits. That's right. AI for your restaurant. Stay tuned.

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I have a great episode for you. I got two guys on. Jose Albis, co-founder and CGO, and Gordon Paterson, co-founder and COO of Dynpricing.ai. It’s going to be a good topic, not something we've talked about before on the show. Gordon, big picture, top-level overview of what you guys do and we'll go from there.

Dynpricing Technologies

Yes, Jaime. Thanks for having us on the show. We're super excited. That's great. Dynpricing essentially is a monthly SaaS subscription software that we built to help restaurants be profitable on third-party delivery platforms. Before the pandemic, there were third-party delivery apps out there. Restaurants use them but when the pandemic hit, everything changed.

All of a sudden, third-party delivery platforms like Uber Eats and DoorDash t saved a lot of restaurants. Over time, it became necessary for restaurants to run their business even post-pandemic. The problem here, Jaime, is that I don't have to tell you or your audience that margins are thin and margins are even thinner on these platforms. These fees can dig into their margins. Jose Albis, my co-founder, and I decided to build a monthly solution that helped restaurants be profitable on these channels.

In our experience, restaurants have difficulty managing these channels effectively and turning a profit, and they're just spinning their wheels. The fact of the matter is that these platforms are still bringing in revenue for restaurants. We wanted to help restaurants make money on these platforms. What is Dynpricing? Dynpricing is a variable pricing solution for restaurants on these platforms. Essentially, what we do is affect pricing on these platforms during peak hours and off-peak hours. What does that mean?

That means that when your restaurant is slammed to the gills, you're having trouble servicing in-house guests, and your kitchen is at capacity, what we do is we increase prices incrementally on say, Uber Eats and DoorDash. What that does is not only does it increase your profitability but it also turns a few customers away to offset that maximized kitchen capacity, enabling restaurants to serve their customers in-house better and enabling their staff to not be overwhelmed.

On the flip side of that, what we do is drop prices during a restaurant's off-peak hours. We do this all automatically. This is through software, artificial intelligence, and machine learning. Algorithms, Jose can talk a lot more in-depth about the technical stuff than I can. During off-peak hours, we automatically drop prices to a point where we drive transactions during slow periods.

What we're doing on a high-level view is we're offsetting those peaks and those valleys that restaurants tend to go through throughout the week, throughout the month, and throughout the quarter. We have a motive here to help restaurants. I can talk about this stuff forever and ever. Jose, why don't you help me out here and jump in and fill in the gaps?

I’m ready to chime in. Yes. One of the main things that restaurants do when they're overwhelmed is that they turn off these channels. At the end of the day, it's going to have the same effect. You're not going to get business from it. Why not instead deter some of them and increase the profit that you make on them, just during this time? On the flip side, as Gord was saying, there's always a pool of people who order through these apps, especially during these off-peak hours.

The interesting thing call it because of their schedule, because of their habit, because they're doing intermittent fasting, whatever. The reality is that there are people who order during off-peak hours. If you see the pool of people that make these orders, they usually have more time and they browse around.

Any user goes through an app and let's say, you put Indian and it's going to come up with the Indian restaurants that you like and then a few that you may have not. Most likely, there's the highest chance possible that someone may compare prices between products and either choose the same one that they love because they love it very much or give the other one a try.

That's where the opportunity comes. As you can imagine, this is all about elasticity, the variables that come into play in economics, and most importantly, load balancing the workload in the kitchen, front of the house, and back of the house, and then smoothing the operations so that you can have better results, but also predictability and most importantly, the quality of the service that you are delivering in the restaurant.

Restaurant-Tech Space

I want to come back to a number of those points in a few minutes. Give me a little background on both of you. Why are we even talking about restaurants? How are you in the tech space? How did we get from history to where we are today? Why don't you kick it off?

I was born in Colombia.

Not that far back, Jose.

Not that far back. I've been in the tech space since I can remember and I'm talking two decades. At some point in one of the tech startups that I was working with, I was consulting for a good friend of mine who showed me this app to order food from the phone. I said, “That is that's interesting.” He kept talking about it.

Finally, I said, “Okay. I'm going to help you to promote it.” I didn't understand what it was because I was approached by a lot of people. I have an idea. You build the app because you build apps. Let's go 50-50, and I would have a lot of meetings like that because of the idea 50-50. At some point, I finally paid attention and I realized what he was trying to talk to me about he wanted me to help him promote it and it was an online ordering solution.

With my tech start-up enthusiasm, I said, “We can build a start-up with this thing a little bit bigger than just promoting this app. Let's recreate it and build something much more powerful.” That's how modern online ordering came to be. This is 2016. At that point, we were educating the restauranteur to pay attention to online ordering.

That was what the sales process was, “This is an extra channel of revenue for you. It represents your brand. You can do all these fancy things, give promos, discounts, things, and all this stuff, and they would not pay attention. Just like restaurants, they all got their Facebook page because everybody had it. Someone told them, “You need to have it.” It's already there. You just need to claim it.

It was an uphill battle, but we would get traction and we would get sales and everything else, but then the pandemic hit. Again, similar. That was another area of online ordering that exploded with the pandemic. It is third-party because they were already well positioned, but then also a first-party online ordering, like modern online ordering is.

We got super busy. Of course, huge growth, and I called. I think Gord applied for a job. As soon as I saw the numbers, you came up. I took him in. We started working together in the marketing and growth department. Part of his great idea was to come up and start a podcast. The restaurant's growth shows us one of the things that we started there.

Through the content and being deep in the industry, we started to talk about dynamic pricing ourselves. One day, when Google decided to move on from modern, I followed later by his invitation to let's create something around AI. AI had just started. He also brought it into our operations in the early modern days, and then that's it. This is how we started Dynpricing.

Thanks for walking us through that. It sounds like you guys got introduced and have been working together closely. What else is in your background?

Thank you. Jose and I have worked together on various tech startups for many years or over a decade. Where I started in tech was in in marketing, SEO, and those types of businesses but then, a few years ago, I did work for Jose and that was my first experience with food tech and restaurant technology. Just like you said, we were doing research for podcasts.

Long story short, we're doing our research for a podcast episode and dynamic pricing kept coming up. I was dumbfounded why it hadn't been adopted in the restaurant industry. Long story longer, I decided to build this product and Jose Albis was my first phone call to come join me and build Dynpricing, so here we are.

Dynamic Pricing

It's funny you asked the question, why doesn't this exist? It is because it exists in hotels, airlines, cruises, and other things that I'm sure you guys know more about than me, but we've all come to accept that the person in the hotel room next to us is paying a different price. The airline seats could have vastly different prices and I mean vastly. It could be gigantic different pricing, but at the restaurant, we all expect to pay the same price and that's our expectation.

Perhaps it's going to change. I wasn't sure, we'd only talked briefly before and you referenced the third-party platforms but I want to ask your future thoughts. Is it eventually going to make it into the sit-down part of our restaurant experience and get into that? You started with the digital part. What is the consumer expectation? You've already hit the word elasticity, Jose. Some people don't care. “I want a hamburger now. I don't care. $7, $10, or $15, I don't care. I want it because I want it,” and they order it. Other people are looking for the special $5 hamburger promo. Is that the crux of it or a big part of it? What do you think, Jose?

Not exactly. First of all, you wouldn't see a change in price like you just did as an example, going from $7 to $15. That would be incredibly shocking because you will remember that difference but something that it's not life-changing, something that it's not that impacting. If you think of the evolution of dynamic pricing in the hotel and airline industry, maybe a lot of your audience will remember back in the day to try to get a discount, you would spend two hours with a reservation center charming the woman or man who was on the other side and/or complaining that something needed to be done because something happened.

After two hours, you would get a $50 discount on an $800 ticket. Now, that $800 ticket, you can get it for $300 or maybe $900, but the discounts that this has allowed the airline and hotel industry to offer are immense. We've all changed our behavior. We've learned that on Tuesdays if you do it earlier, it's better than you can take the risk at the last minute and get that $800 for $200 because they need to fill capacity. What we're expecting is a similar adoption and behavioral change where we're all going to adapt but at the end of the day. I was talking to our social media manager and she didn't know any better than hotels and airlines with dynamic pricing. She asked, “What do you mean that you had to call somewhere or speak to a human?”

“Get on the phone. What is that?”

The reality is as technology gets adopted and we continue furthering into this new technology, we can see already a horizon full of opportunities, full of incredible personalization the same way that they can do with you with this technology in airlines and hotels. From our point of view, it's a very bright future. Yes. It's scary. For the consumer, of course, it's scary because of what it sounds, what it comes there, and because negative news runs like wildfire.

 

As technology gets adopted and we continue furthering into this new technology, we can already see a horizon full of opportunities and incredible personalization.

 

What we know is that a lot of restaurants are missing out on opportunities and are dying because of a lack of profitability. The end consumer also doesn't like their favorite restaurants to go under. We're positive about what's to become. It's going to take some time. With online ordering, it's going to take a lot of education because that's the nature of the market. When something new comes up, it's going to be another uphill battle but we're ready to climb it up.

It's very interesting. I guess the the example of the wild price swings is maybe too much but I know that with price changes everywhere across the country, you would come in and the menu has been changed. That used to be $9.99 and now it's $12.99. You're accepting that. When you print something, it usually sits there for a little while. Prices are changing. I'm curious about how much is imperceptible or what are the differences that you might see to extract a little bit more revenue. How does that play out?

Let me go back to elasticity. An elasticity is a variable that shows how sensible you are to a price change or a particular price level. What happens is that the answer varies. It depends on the type of cuisine. It depends on the power of the brand because if there is a powerful brand and I tell you because we've tested it, but also even from the online ordering experience on its own, some brands can have numbers and it doesn't change at all because people love that food, or because people love the service.

It's not a blanket approach. It's all specific to items. It's specific to changes in the cost of foods and it's incremental changes that have more variables than just that. What it means is that, depending on the brand as the engine has a feedback loop on what is happening in real-time, then it will adapt. That's not just on demand.

It includes local events, weather, seasonality, inflation, and all these different variables that will also help guarantee that the ecosystem starts to regulate itself. When I say the ecosystem, I mean the consumer, the restaurant, the suppliers, and even the delivery drivers who are involved in this. We are super positive that it will be a win-win for everybody.

I saw one of the quotes on your site. One of the things that I was going to ask you folks about is it says, “The system predicts local demand.” How is that local demand predicted? You mentioned a few factors, but what goes into it?

Local demand is more like local events. For example, picture a chain where location one is downtown and close to a stadium. Location two is in the servers. Location one has a responsibility to keep the service level that they are expected to deliver at any given time. There's a flood of thousands of people coming out of the stadium that it's a block away from this restaurant.

That would be an opportunity to both keep the service level by deterring some clients. Remember, this is the third party. The people who come to the restaurant can still have that good service because the kitchen is less overwhelmed with the third-party delivery orders that they're still getting. That's what the principle here is all about.

Into The Future

I do want to poke and prod them in the future because it sounds like it's not the case right now with what you're doing, but is it in the foreseeable future, folks who use a menu board? In a lot of quick service places, there's not a printed menu. There's not a price that's always there. Those LED screens can change on the fly every day by meal time. Is that coming soon?

It's hard to tell what soon means, especially in this industry but what I can tell you is that the progression would be from third-party to first-party online ordering to then eventually when we understand that there's more communication. One of the pieces is that that is missing here is transparency. Why didn't you let me know that I could have had this burger at 15% or 25% less if I waited five more minutes?

As the consolidation of, let's say, POS, which is the center of the universe for most restaurants, that integration is critical until something can be delivered. The important part is the transparency that comes with communication. We are working on technology that is related to that. We will get there and I think that it's another horizon to be explored. As I was saying before, it is very positive. At some point, you're going to enjoy it.

 

The important part is the transparency, which comes with communication.

 

The honest take is on a Friday night, to get into a place, I'm willing to pay more than a Wednesday night for the same meal. If I go to a place, the steak is $24 on both nights but I'm willing to pay more for that Friday night experience and they're leaving money on the table. Eventually, it's going to get to that point in time.

It reminded me of the happy hour experience with it because you rattle off the store. Sometimes, if you order at 06:59, you get one price and if you order at 07:01, you get a different price. The customer's a little bit upset about that. The bill comes, “I thought I got my order in and got the $5 margarita, not the $10 margarita.”

I can see what you're saying. That can lead to a lot of issues and I think technology will solve some of the stuff down the line. Gordon, let me go to you for a second. In the podcast that you guys do, what are you hearing out there that is related to what you guys do, like industry trends? You guys interview a lot of folks. I think I saw up to over 80 episodes. Tell me some fun stuff there.

Educational Resources

I’m happy to. The Restaurant Growth Show podcast, we've been doing since late 2021. It followed us from modern online ordering to when we decided to build Dynpricing. We've got a wonderful array of experts and restaurant owners, from technology down to your average mom-and-pop shop. We love all perspectives and we have a lot of fun talking shop with everyone as I'm sure you do as well. Getting a whole lot of different perspectives. but we continue to learn about our industry. We continue to learn and do our best to provide valuable information, tips, tools, and perspectives for our audience. We've just had such a blast doing The Restaurant Growth Show. We've completed episode 81 and we're looking to have 100 episodes by the end of 2024. It’s a lot of fun doing the podcast.

I’ll make sure make sure people get over there and check it out. The only thing I saw on the side, I didn't notice until now, so I didn't dig in. You can tell me what it's about. I saw Strategy Academy. Is that the same thing? Is that blog post, content? What have you got?

The Strategy Academy is education about pricing strategies and the psychology of pricing your menu. To touch on what Jose was talking about in terms of elasticity, the psychology of the average person who logs into Uber Eats is expecting prices to be variable. They're expecting prices to be changing, not unlike when you're driving by your local gas station. What's the price today?

I do realize that we're in a very price-sensitive economy. That has been that way for many years and consumer behavior has changed around that. It's the same with third-party delivery. When someone goes in, they're looking for their favorite Mexican dish or Thai food or what have you. The prices on those menus have always been changing, to be honest, with different fees, with different localities, or with different delivery times.

All of these things are changing prices. What we're showing restaurants is that they're able to access additional transactions and increase their profitability incrementally over time using dynamic pricing and variable pricing through Dynpricing.ai. Back to your original question, the Strategy Academy is that. It analyzes price elasticity and the psychology of creating a menu in the online space.

I was going to look for it. Let's shout out to Jason who connected because I see his book in your background. Jason is the one that connected us. I appreciate you. Everyone needs to follow Jason Brooks. Good stuff. Check out his content. In closing, Jose, anything we didn't hit that you'd like to bring into as a summarization point?

Maybe another layer of the nerdiness here, just to geek out, is that one thing to consider is that every third party is different and the user of each of these is different. This means that at the most basic, not all restaurants are in all apps. Therefore, your competitor in one will be different than the other. The demand that will happen in one will be different than the other. All of these variables. Can you imagine a restauranteur spending all day or having someone spend multiple hours a day measuring or monitoring what could be done, changing, and updating? It's an incredible amount of work.

 

Every third party is different, and each user is different.

 

Instead of having to hire a consultant to help you with managing profits in a menu, to update them, do an analysis of the cost of goods, and all these different things that take hours, spreadsheets, and then, “Let's do this. You approve and you go,” why not leave that to Dynpricing Solutions? Dynpricing will do it all day long without having you worry about or waste any time or effort in making successful changes to your menu.

Gordon, on your side, hit us with websites, socials, or anything else you guys have going on. Any last parting thoughts, wisdom, etc.?

I don't know about wisdom, Jaime, but I can drop our website and our social handles. Dynpricing.ai. You guys can find us on our website. All of our social handles are Dynpricing. We're active on, LinkedIn. Please reach out to us there. TikTok, Facebook, all of the Instagram, all of the socials. Twitter as well. We do love content. We love pushing out our podcast content along with short clips, as well as short videos. Please do reach out to us at Dynpricing.ai.

I think we did well. We had a lot. I appreciate you both. Good stuff there. Folks, Jose Albis and Gordon Paterson of Dynpricing. You can find them on the web at Dynpricing.ai. For more great restaurant marketing, service people, tech tips, etc., stay tuned to us here at
RunningRestaurants.com. In the meantime, do me a favor. Wherever you're watching this or listening, like us, subscribe to us, review us, and rate us. All that stuff is very helpful and we appreciate it. We'll see you next time. Thanks, guys.

Thanks, Jaime.

Thank you, everyone.

 

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