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Uber’s polarizing surge pricing is coming for your food deliveries

Uber’s polarizing surge pricing is coming for your food deliveries

Uber’s polarizing surge pricing is coming for your food deliveries

Kevin Novak, an early Uber data scientist, is an investor in dynamic pricing startup Sauce.Kevin Novak

  • Food tech startup Sauce enables restaurants to boost delivery rates using dynamic pricing.

  • Sauce is backed by venture capitalist Kevin Novak, who created Uber’s skyrocketing pricing.

  • One fast-casual chain says it was able to double its profit margins on deliveries with Sauce at 49 stores.

Venture capitalist Kevin Novak, an early data scientist at Uber, invented ride-hailing giant Uber’s skyrocketing pricing.

Novak, founder and managing partner of Rackhouse Venture Capital, once again touts the benefits of supply and demand pricing. Only this time, he’s not coding. He is a seed investor in Sauce, a dynamic pricing startup that uses machine learning to adjust menu prices for delivery orders.

The timing is right for the industry.

It’s becoming standard practice for chains like Chipotle and McDonald’s to raise menu prices to offset shipping and labor costs and rising supply chain costs. The amount spent on dining away from home, including restaurants, was up 8.6% in October from last year, according to the Consumer Price Index. According to Chipotle, prices for delivery orders in the third quarter were up 13% year-over-year.

But Sauce co-founder and CEO Colin Webb told Insider.

Founded in 2020, Sauce’s AI-powered software can suggest prices for different online menus at different times of the day based on a restaurant’s historical and real-time delivery order patterns.

“We actually suggest strategies to raise or lower prices, and restaurants can choose their preferences or build their own strategy from scratch,” Webb told Insider.

In some cases, “I’ve seen restaurants raise prices by 40% during peak hours,” he said.

Colin Webb

Colin Webb is an MIT graduate and co-founder of dynamic pricing startup Sauce.sauce

“We are trying to ensure that our margins are not eroded significantly.”

Webb said he’s taking a closer look at dynamic pricing as restaurants face inflationary pressures and the possibility of a recession in 2023.

Sauce has partnered with “hundreds” of restaurants and “has grown by more than 700% this year,” said the MIT graduate, who declined to give specific customer numbers.

Piada Italian street food, a fast-casual chain, has been using the sauce since June. A case study released by Sauce this month found that the 49-unit chain doubled his profit margins and used a dynamic pricing model to improve its takeout operations.

In a case study, Jason Profitt, Director of Technology at Piada, said:

In a follow-up interview with Insider, Profitt said Piada gave Sauce access to his order history. This allowed Sauce’s machine learning technology to “effectively train the AI” to know when and how much to raise prices.

Piada capped Sauce at 10% markup.

“Demand and supply pricing allows us to keep markups lower during periods of low trading volume and higher markups during periods of high trading volume,” Profit said. .


Fast-casual restaurant chain Piada is testing dynamic pricing with tech startup Sauce. The maximum price increase is 10%.Piada

Piada also took advantage of Sauce’s ability to adjust the price of the same menu item in different ways for different stores, with different supply and demand in different markets.

Profitt told Insider that it couldn’t do that when Piada used online ordering platform Olo to create “static” markup.

When Piada increased its delivery rates through Olo, Profitt said low-volume stores could “scare away DoorDash guests.”

Webb said Sauce’s technology has evolved this year, making it more flexible based on feedback from restaurants. The startup’s technology is automated, but the operator can also manually control his Sauce-preferred pricing.

“There are restaurants that change prices and have different prices on weekends and weekdays,” Webb told Insider.

“It’s like paying to skip the line.”

Cowen analyst Andrew Charles wrote in a Nov. 21 note that the restaurant industry has experienced record menu price increases this year, but that “there have been limited examples of consumer reaction to industry price increases. There are,” he said.

So far, customers have not complained about paying higher prices for the convenience of on-demand delivery during peak hours, according to Webb.

“It’s like paying to skip the line,” he said.

In a customer feedback survey, Piada’s Profitt said diners aren’t hesitant either. In fact, they “discussed that the price was reasonable” for third-party deliveries, he said.

Novak, whose VC firm Rackhouse invested in Sauce last year, said the price reduction feature is often overlooked when discussing dynamic pricing.

“I think people are looking at dynamic pricing as prices go up. It’s a kind of false correlation. says.

Sherry Kimes, professor emeritus at the Cornell University Hotel School, also agreed with Novak, saying that dynamic pricing gives consumers “some control” over how they spend their money. For example, demand pricing in the airline industry allows consumers to purchase tickets on cheaper travel dates.

Still, she said most consumers don’t like steep pricing.

Kimes wrote in a recent op-ed column for QSR Magazine:

For restaurants, dynamic pricing is still worth trying.

“Don’t be afraid to experiment,” she writes. “With the digital menu, it’s easy enough to just try and see what happens.”

Read the original article on Business Insider

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