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Mobile App Brings Dynamic Pricing to the Dinner Table

A new app is testing whether the economic theory behind Uber and Priceline can work in restaurants, too.
May 26, 2015

In Texas, a state whose gastronomical classics include barbecue, Tex-Mex, and chicken-fried steak, diners are testing something new. An Austin-based startup called Taste Bud has launched a restaurant app that puts its own spin on the dynamic pricing models of ride-sharing apps Uber and Lyft.

The Taste Bud app applies the idea behind Uber to restaurants.

Launched last fall, Taste Bud offers discounts at 30 local restaurants. The deals are updated in real time depending on supply and demand.

The idea is that you save less during the noon rush than you would when restaurants are not as busy. The app targets money-conscious college students, with all but two of the Taste Bud restaurant choices within blocks of the University of Texas at Austin. Taste Bud joins a handful of similar services beginning to operate in other cities, among them RezGuru, TableGrabber, Leloca, Hooked, and Table8.

With Taste Bud, each restaurant designs the deals it wishes to offer, including the minimum and maximum prices and the times at which the offer is valid. Then Taste Bud’s algorithm works within those parameters, frequently recalculating the offer’s value on the basis of factors like time of day, supply and demand at that moment, and a user’s buying history and proximity to the restaurant. Offers then filter onto the app’s home screen, where each user can sort them by distance, price, or location. Once the user accepts an offer, the price is locked into place and the app generates an electronic coupon that is redeemable at the restaurant. Taste Bud takes a cut of the discounted offer.

During the final weekend of South by Southwest, an event that attracts around 85,000 registrants and has restaurants packed, I went to Trudy’s Tex-Mex Restaurant and Bar, a longtime staple in Austin. Half an hour before I arrived, I used Taste Bud to purchase $15 worth of food for $11.01, or 26.6 percent off, during one of the busiest times for a restaurant—the weekend dinner rush.

When I tried to redeem my coupon, the bartender was unfamiliar with Taste Bud. She consulted a supervisor, who had heard of the app but struggled for around 20 minutes to process the transaction. In the end, I did save the $4.

Further testing during the week following South by Southwest showed that the best deals did seem to be available at off hours. A coupon for $10 worth of food for $6.78, or 32 percent off, went to a Tuesday-night dinner of Kosmic Karma pizza from the hippie-themed pizzeria Mellow Mushroom, a popular spot for college students.

Around 2:30 p.m. the next day, in the midafternoon doldrums, I got a better deal—$10 worth of food for $6.35, or 36.5 percent off—from the national chain Qdoba. In total, I saved almost $11 over three meals, and I had no trouble redeeming my last two coupons.

The pricing seemed to work as expected on my three meals. But to broaden this limited data set, I recorded every discount offered during peak and nonpeak hours on a single weekday. I got similar results. At 8:45 a.m., the average discount was 33 percent. By the height of the lunchtime rush, the average fell to 30 percent, only to soar to 47 percent by midafternoon. The dinner rush sliced the average to 29 percent.

For restaurants, the app boosts business during nonpeak hours, helps them manage perishable inventory, and tracks repeat customers. According to Marcelo Vieira, CEO and cofounder of Taste Bud, restaurants are seeing about a 20 percent return on their investment in the first 30 days.

Wade Guice, co-owner of ATX Boudain Hut, a food truck and trailer offering Cajun cuisine that has been using Taste Bud since September, says the app provides a cheap way to advertise. He estimates that the truck processes 30 transactions a week via Taste Bud, and though he’s offering discounts of 10 to 20 percent, he says, “I’m still making my money off of it, too.”

Though the algorithm does seem to be doing its job, it’s not yet clear how appealing Taste Bud is to diners.

One recent evening, only 90 minutes until closing, popular Trudy’s had sold just two of its 50 available coupons for the day. My waiter at Mellow Mushroom said that even among their price-conscious customers, only two to three people use the app there each day.

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