Faculty & Research
Restaurant Revenue Management
Vol 4 No 2
By: Sheryl E. Kimes Ph.D.
Executive Summary: The principles of revenue management can be applied to restaurants, given that the restaurant's
unit of sale is the time it takes for a complete meal cycle, rather than just the meal itself. Moreover,
restaurants have classic characteristics that invite revenue-management strategies (those characteristics
being relatively fixed capacity, perishable inventory, a demand inventory, time-variable demand,
appropriate cost structure, and segmentable customers). When a restaurant's operation is gauged by
the time-related measure called revenue per available seat-hour, or RevPASH, managers can analyze
operations and menus to improve that statistic. Using RevPASH allows managers to capture more of
the restaurant's actual performance in their analysis than does average check or typical food- or laborcost
percentages.
Restaurateurs have available two general sets of strategic levers to build RevPASH, which is the
goal of restaurant revenue management. Those key levers are duration management and demandbased
pricing. Pricing approaches involve setting prices according to customers' demand characteristics,
such as whether they are willing to dine off peak or whether they are not as concerned about
price as they are about the dining experience. Pricing strategies must be approached carefully to avoid
the appearance that the restaurant seeks to gain at the expense of customers (which customers view as
unfair). Typically, this means adjusting menus to offer discounts and specials that, while they offer
more value to the customer, may well make as strong a contribution to revenue as other, higher-price
menu items that cost more to serve. That is the province of menu engineering.
Duration management helps restaurateurs gain control of the most erratic aspect of their
operation, which is the length of time customers sit at a table (including the rate at which customers
will arrive to occupy that table). Among the tactics available for duration management are reducing
the uncertainty of arrival, reducing the uncertainty of duration, and reducing the time between meals.
Whether the restaurant accepts reservations or serves customers as they arrive, its manager needs to
have a sense of when customers are most likely to appear. That is a matter of creating a forecast
based on the restaurant's history and of carefully managing reservations (if the restaurant accepts
them). Although a restaurateur cannot directly control the customer's use of a table, careful process
control and analysis can make the restaurant's operations (including menu design, kitchen operation,
and service procedures) as effective as possible for moving the meal along, and perhaps indicating to
the customer when it is time to leave.
As an example, Chevys Arrowhead, a Phoenix-area restaurant, used revenue-management levers
to improve its revenue through process control. Seeking to augment revenue and also to improve
customer service, the restaurant analyzed its operations and its customers' characteristics. It found
that its table mix (mostly 4-tops) was inappropriate for its customer base (mostly singletons and
couples). It also found that it could tighten up its post-meal procedures, particularly those involving
settlement. The restaurant was reconfigured, servers were retrained, and certain key positions were
added. The result was an increase in revenue (from higher occupancy) that paid for the increased
capital costs in one year. The revenue improvement in this instance was to guests' advantage, since
menu prices were not changed as part of this revenue-management implementation.
Your Comments Please
If this CHR Report made a positive impact on your management approach or business operations, we welcome your commentary. We would like to post your comments on our website. Please submit your comments to js372@sha.cornell.edu and rohit.verma@cornell.edu.
Download The Report
To view the whole report, please click on the link below
- Restaurant Revenue Management By: Sheryl E. Kimes Ph.D.
| If you have trouble downloading a pdf, and are able to install software on your computer, try upgrading to the latest version of Adobe Acrobat Reader to see if that allows you to read it. |
Other Reports or Articles You May Find of Interest
- Dedicated or Combinable? A Simulation to Determine Optimal Restaurant Table Configuration
- Multi-Unit Restaurant Productivity Assessment: A Test of Data-Envelopment Analysis
- Yield Management
About Sheryl E. Kimes Ph.D.
Dr. Sheryl E. Kimes is a professor of operations management at the School of Hotel Administration. From 2005–2006, she served as interim dean of the Hotel School and from 2001-2005, she served as the school’s director of graduate studies. Kimes teaches restaurant revenue management, yield management and food and beverage management. She has been named the school’s graduate teacher of the year three times. Her research interests include revenue management and forecasting in the restaurant, hotel and golf industries. She has published over 50 articles in leading journals such as Interfaces, Journal of Operations Management, Journal of Service Research, Decision Sciences, and the Cornell Hospitality Quarterly. She has served as a consultant to many hospitality enterprises around the world, including Chevy’s FreshMex Restaurants, Walt Disney World Resorts, Ruby’s Diners, Starwood Asia-Pacific and Troon Golf. Kimes earned her doctorate in Operations Management in 1987 from the University of Texas at Austin.
For more information visit http://www.hotelschool.cornell.edu/research/facultybios/faculty.html?id=43
