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Archive

Is 5¢ the Magic Price Point for Fast Food?

Is 5¢ the Magic Price Point for Fast Food?   . / Credit: Stacks of nickels image via Shutterstock

When you flip it and it comes up heads, you'll see Jefferson. If it comes up tails, you'll see Monticello, his colonial plantation.  But if you operate a fast-food restaurant, that humble nickel is what it will cost you for every additional second a customer has to wait to get his or her food, according to a new study.

That finding correlates neatly with an old fast-food-business maxim that a seven-second reduction in customers' waiting time increases a chain's market share by 1 percent, the study observes.

Either way, time is money when you work your way toward the drive-through window.

The study focused on drive-through hamburger restaurants in Chicago and the rest of Cook County, Ill. It was conducted by Gad Allon, an associate professor of managerial economics and decision sciences at Northwestern University's Kellogg School of Management, and two colleagues, Awi Federgruen, a professor at Columbia University, and Margaret Pierson, an assistant professor at Dartmouth University.

Companies that offer fast-food franchises set the standard for waiting times, but  the individual outlets determine their prices (to avoid illegal price-fixing).

"Both the price and waiting time parameters have a significant impact on the consumer's decision," Allon and his colleagues wrote in their paper. The results confirm that costumers patronizing fast-food drive-through restaurants trade off price and waiting time.

"In particular, to overcome an additional second of waiting time, an outlet will need to compensate an average customer by as much as $0.05 for a meal whose typical price range is $2.25 to $6.00," the authors  wrote.

Interestingly, customers assigned only one-third as much value to the time they spent traveling to the fast-food outlet as they did to the wait once there.

"One possible explanation is that people purchase their fast-food meals on the way home or from home to other activities, and thus do not associate any disutility with the travel time," Allon suggested.  "However, the waiting time once in line is considered pure waste."

Reach BusinessNewsDaily senior writer Ned Smith at nsmith@techmedianetwork.com. Follow him on Twitter @nedbsmith.We're also on Facebook & Google+.

Ned Smith
Ned Smith

Ned was senior writer at Sweeney Vesty, an international consulting firm, and was Vice President of communications for iQuest Analytics. Before that, he has been a web editor and managed the Internet and intranet sites for Citizens Communications. He began his journalism career as a police reporter with the Roanoke (Va.) Times, and was managing editor of American Way magazine and senior editor of Us. He was a Captain in the U.S. Air Force and has a masters in journalism from the University of Arizona.