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Yield management: An alternative to the discount deal?

While standard practice in other industries—hotels and airlines use it constantly—yield management models are still fairly new to the restaurant sector. The concept is simple enough: during traditionally slow times (such as 6:00 p.m. in New York City), the restaurateur sets aside several tables for discount pricing. The days/times are set by the restaurants, as is the number of tables. In New York, Le Cirque replaced its prix fix pre-theater menu with a yield management model developed by Savored, and available in 10 cities.

Savored combines the online reservation platform of sites such as Open Table with “discount” dining, with the difference being the deal is only available during set times at set tables. Available in 10 cities—New York, Boston, Philadelphia, Washington, D.C., Atlanta, Miami, Chicago, San Francisco, Los Angeles and Denver—the Big Apple definitely dominates, with 500 restaurants out of a total of 1,000 on its roster.

The Savored staff works with restaurant clients to determine traffic patterns and when discounts are the most beneficial. “Using our yield management model, operators will carve out a specific subset of their tables to determine when to offer the discount,” says Benjamin McKean, the brain trust behind Savored and chief executive. “In the financial district, the discount might be applied over the weekend; in midtown, it might be Sunday through Wednesday, because it’s busier on the weekends. On Sunday night the operator can send me 20 tables; on Saturday night, it can be only two.”

Discounts, which range between 15 percent and 40 percent, are applied to the entire bill, not just the food.

The smartphone app from Leloca is a version of the yield management model, connecting diners via their smartphone app in a specific geographic area with restaurants offering on-the-spot discounts. In this scenario, operators are able to push out alerts to would-be-diners when they want to fill seats. Leloca, however, does not offer an online reservation function.

Not just economics

Le Cirque’s reason for signing on is not just based on economics, although of course bringing in additional revenue is always welcome. “In the grand scheme of things, we are talking only about a few thousand dollars for a restaurant that makes millions of dollars annually; on any given day Savored reflects maybe a 5 percent impact on revenues,” says Carlo Mantica, co-chief executive of LC International, which owns Le Cirque.

The real benefit, says Mantica, is “using technology to reach a broader audience and fill up the room when we want to. In New York, not many are coming in at 6 p.m. for dinner; when the full-paying customer comes in at 7:30 p.m., they are walking into a lively atmosphere, made possible by the early diners who took advantage of the ‘discount’ price.”

Le Cirque, which Mantica notes means the circus, is a restaurant known for great food and the great buzz in the room.

Keeping the restaurant full also makes for a more satisfied wait staff. “The service staff comes on board at 5 p.m; by 5:30 p.m. they are ready for action—this keeps them happy,” says Mantica.

Mantica discounts the views of those who negatively view programs like Savored, seeing it as no different than offering a pre-theater discount. “Personally, I believe we should embrace technology,” he says. “There’s nothing to be ashamed of. We are reaching a broader audience; Savored has a bigger database than we have. We are bringing in new traffic, new people and a more tech-savvy, younger demographic. We opened Le Cirque in 1974 and Circo in 1996; this is another way to connect with new potential customers.”

The menu is identical for all restaurant guests, although, adds Mantica, “our food is always evolving. We are always trying to please new customers and incorporate new food trends. We have also created a more casual product, Le Cirque Café, which is next door. We are doing other things, beside Savored, to attract a younger demographic.”

Savored’s reach is poised to expand with Groupon’s purchase of the four-year old company in September, 2012. On the horizon is a move into arenas, such as spas, that will also benefit from a yield management model.

“Our first restaurant was KittiChai in Soho, which is still working with us nearly four years later,” says McKean. “Our relationships with these merchants are strong, demonstrated by their longevity.”

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