Photo: naota
Denny’s breakfast menu in Provo, Utah, offers something that combines demand-based and cost-based price discrimination, but it’s neither.
The “French toast slam” is two pieces of toast and two eggs, two strips of bacon and two sausages for $6.99. The “senior French toast slam” is one piece of toast and one egg, and two strips of bacon or two sausages for $5.49, and you must be at least 55 years old to buy this.
You pay 20 percent less and get half as much; but why restrict it to older people? Denny’s cost saving on the senior slam is probably less than 20 percent. Perhaps the demand elasticity of the 55-plus is higher than that of the younger set, so that explains the price difference as demand-based. Some seniors would prefer the smaller meal and happily pay as much or even more for it, rather than purchase the regular Slam where they would feel compelled to eat everything.
Does Denny’s understand behavioral economics? Why do they charge seniors less? Why this unusual pricing scheme?
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MichaelM looks at it from the customer’s perspective, but the vendor’s perspective is more important to me. Three primary factors go in to the cost of a meal at Denny’s: the price of the food, the cost of the labor, and amortized overhead.
The differential labor that goes in to making an additional piece of French toast and an additional egg is negligible. There is also no differential on overhead, when viewed from a per-meal-served basis. So the only difference is in the cost of food. The difference in the cost of food between the standard and the senior meal is also close to negligible — even retail, the cost would be less than $1.50, so the “discount” does not seem to make financial sense.
The only way it can make sense is if the senior discount meal is still profitable, considering the cost of labor and overhead. Which means that the profit margin on the regular meal must be higher than it might have seemed at first blush.
@mike mccreads:
Now, if only you could find a way to sell the 20-piece meal short, then you would really be in business.
Bread and eggs are much cheaper than pork products, and you get the same amount of pork products in both slams. I don’t buy bread, but let’s say a slice of bread costs 10 cents. I do buy eggs for $1.50/dozen, so an egg costs 12 cents. Bacon costs me $6/lb and yields about 14 slices, so that’s 43 cents/slice. So cost of materials for the regular slam is $1.30, while the cost for the senior slam is $1.08 (I’m ignoring the fact that the beverage selection probably has the same cost of materials for both, further reducing the percentage cost difference). The restaurant saves 17% (or less) on materials, saves nothing on overhead, and yet charges seniors 21% less. I’d say that’s a good deal for the seniors, and a no-brainer as to why they don’t want to offer it to everyone else.
I noticed this the last time I was in Denny’s and advised my senior friend to order the regular slam for better value. He actually finished his portion. From Denny’s point of view, serving the senior slam requires the same amount of work as serving the regular slam…..wait service, cook to put food on plates, bottle washer to clean plates and silver wares, electric/gas, space rental, etc…..with the difference only in putting a little less food on the plate. Food is usually purchased by the bluk so the reduced cost, even in small amount, is the savings which is passed on to the customer. Denny’s waiters should point out the small price difference to the seniors who choose to order the senior slam to avoid the customers feeling being cheated after having had their breakfast.
There is no way that the food cost is as proportional to the the price as you suggest. By far the cost is dominated by labour, however the fullness of the restaurant compared to its labour and seating capacity can be even more important.
They can get significant economies in scale by increasing the total numbers of meals served, so if the restaurant is empty this senior special would drop the overall cost of labour.
Additionally, seniors are less active and generally require less calories than their younger counterparts — and may even more more cognizant of that fact. Less food more less money may be both a good financial and health benefit for this group.
Perhaps the perception that Denny’s is “senior-friendly” encourages seniors to come more often, bringing other non-seniors along with them, raising revenue and net profit. Had the dish been open to everyone, seniors don’t get that sense they’re special. Also, seniors may be the demographic which most regularly eats at diners for breakfast, so singling them out makes the most sense.
I don’t know how that translates into econo-speak.
I wonder if, instead, they’re trying to lure seniors into the higher priced “slam” group altogether. Everyone so far has been assuming that most seniors order from the Grand Slam breakfasts anyway, and this is somehow trying to manipulate the costs for Denny’s/bring more seniors through the door/etc.
What if, in fact, seniors RARELY order something as pricey as a Grand Slam breakfast? What if most are happy with lower-priced breakfasts–say, just one egg plus bacon and toast, or oatmeal, or something else that costs closer to $4 or under. Perhaps this is Denny’s way of trying to entice seniors into the $5-plus category of breakfast menu items, by offering something that seems like a nice value (due to the discount) but is not daunting in portion size.
Perhaps it’s supposed to be a false savings…maybe the idea is that on the surface, it looks like Denny’s is offering serniors a deal. However in reality they are not.
So if I (a non-senior) glance at the meal I think, “That’s nice that they’re doing something exclusively for seniors.” But if a senior actually gives some thought to it, it’s not that good a deal, so Denny’s sort of “upsells” them to the full meal, for pretty much the same amount of labor and minimal extra raw materials costs.
I wonder how many seniors actually order the senior meal, and how many just order the full meal?