All restaurants should copy the Goldman Sachs cafeteria’s genius pricing plan

October 18, 2013

Le Diplomate could learn a few things from Le Goldman Sachs. (Marge Ely/For The Washington Post)

Goldman Sachs has a pretty brilliant approach to making sure its highly-paid workers don't' waste a chunk of their workday standing around waiting in line for lunch. As John Carney at CNBC reports, the investment bank charges full price for sandwiches and salads at its cafeteria from 11:30 a.m. to 1:30 p.m. But if you're willing to eat an early or late lunch outside that window, you get a 25 percent discount.

The only thing that doesn't make sense in this strategy, as Business Insider's Josh Barro notes, is that they have created an unfortunate "cliff" effect. The result is that people start standing around at 1:20 in the afternoon -- waiting for the discount to kick in. Also inefficient! Instead, lunch should be put on a sliding scale so that there are no cliff effects. Then make it dynamic, so that the size and timing of the discount adjusts depending on how crowded the cafeteria is on that day. I'm sure there are some people on the Goldman payroll right now who can work out the algorithm in their spare time, just for kicks.*

But while the Goldmanites work on that, here's an idea: Restaurants everywhere should learn a thing or two from the Goldman Sachs cafeteria. Restaurateurs tend to see success when their place is so full that nobody else can get in the door. In fact, that's a massive market failure.

When you have a line out the door (at a more casual place) or a full reservation book (at a fancy place) it means that more people are wanting to consume your product than you have capacity to provide at that moment. Usually, when demand exceeds supply in a market, it works itself out in the form of a higher price.

Yet restaurants almost never take advantage of this effect! The price to get a reservation at Le Diplomate, the hot new French restaurant in D.C., at 8 p.m. on a Saturday is zero dollars. The same price applies when the restaurant is completely empty. (This is separate, of course, from whatever you pay for your roasted chicken, which is the same whether the restaurant is full or empty.)

The closest I've seen to restaurants putting a price tag on a reservation is in some ultra-high-end places, like the Inn at Little Washington, which adjust the minimum price of a meal depending on the day of the week (per the inn's Web site, dinner is $168 Monday through Thursday, $178 on Friday and Sunday, and $198 on Saturday).

But there's no reason why more modest restaurants couldn't apply the same logic. Why should there always be a 30-person line at your favorite taco truck? The owner could add a surcharge if you're eating between noon and 1, with cheaper tacos the rest of the time. How about an auction for that 8 p.m. reservation at Le Diplomate, rather than handing it for free to whoever happened to call up exactly at the moment that day opened up in the reservation book?

And maybe, while we're at it, somebody will also find a way to make a delicious appetizer out of Vampire Squid.

*Just kidding. We all know that investment bankers don't have any spare time.

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Lydia DePillis | October 18, 2013