Price sensitivity of demand for fine dining in Brisbane CBD – ARIA case study

Matt Moran’s ARIA Restaurant at Brisbane’s Eagle St Pier is proving that you can sometimes increase revenue by cutting your prices – that is, if demand increases proportionately more than the price proportionately falls.

ARIA is simply outstanding. It’s one of the few restaurants I’ve felt like clapping after a meal, and upon entering the restaurant for lunch today I was very happy to learn about the lunchtime special, which for two courses meant a fall in price from around $55 to $40, a 27% price reduction. From a quick scan of the restaurant I concluded that there were twice as many people dining than during a typical lunchtime in the early part of the year – i.e. a 100% increase in customers. So ARIA’s strategy has potentially increased its lunchtime revenue by around 45%, assuming I’ve done the math correctly after a long day.

Technically speaking, ARIA was able to do this because the demand for fine dining is highly price sensitive. It’s a luxury that people can go without, but, if the price is right, they just might try it. On my calculations above, demand for fine dining in Brisbane CBD has a high price elasticity of demand, of around 3.7 in absolute terms.

My lunch companion was a bit skeptical about my cavalier econometric estimates and argued that I needed more than one data point to draw such a conclusion, so I guess I’ll have to head back to ARIA again soon. Next time I’ll try the salmon for the main.

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7 Responses to Price sensitivity of demand for fine dining in Brisbane CBD – ARIA case study

  1. nom, nom, nom.... says:

    Aria Sydney gave my wife food poisoning and blamed us for it. Obnoxious twats who know sweet Bugger all about customer service or fine dining for that matter. Aria Brisbane = mc cafe…..does cutting prices to increase volume mean matt is no longer a luxury good? What would the Champagne Bureau do? Discuss…..

    • Gene Tunny says:

      Thanks for the comment. Yes, it may be less of a luxury with the lunchtime special. I think they may have discovered the demand for fine / luxury dining isn’t as great in Brisbane as they may have expected.

      • nom, nom, nom.... says:

        City beat in the courier mail has reported on aria’s poor showing in Vegas for sometime now including price drops. Treating diners with contempt does not generate demand. Next time have lunch at restaurant II.

  2. Gavin Nicholaon says:

    The problem with cutting the price is that it’s mostly margin they’re losing. We’d need to look at the cost structures, but most restaurants run at 1/3,1/3,1/3 (food, labour, overhead and profit). Thus, around 2/3 of,the cost is variable – and in fine dining, I’d expect that to be higher as the food cost tends to run at about 40%. Unless the $55 pricing was over the odds, I’d be guessing that the reduction of 27% would mean they are doing little more than covering marginal costs. Wouldn’t be sustainable for a long time – maybe a short term tactic to keep staff employed in the quiet post Christmas period.

    • Gene Tunny says:

      Good point. That may be their motivation, as well as to give people a taste for the food and hope they come back in the future when prices return to normal and the margins are better.

  3. Tim Hughes says:

    Salmon would make an excellent choice Gene – great for the brain, good fats and packed full of protein!

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