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.