Facts about hotel mini-bars (model this)

by on April 2, 2014 at 7:25 am in Economics, Food and Drink, Travel | Permalink

What’s surprisingly affordable in hotel rooms across the globe is, however, vodka. It’s much cheaper than peanuts and, in some cases, even water.

That is the case for instance in Zurich, Helsinki, and Oslo.  (Where is the profitable cross-subsidy?  Or is this price discrimination?  Is vodka less likely to be claimed for reimbursement from third-party payment?)  In Toronto hotel minibars, a can of nuts costs on average $18.23, at least among the hotels sampled.

That is all from Annalisa Merelli, via David Wessel.

1 Rahul April 2, 2014 at 7:45 am

Loss leader. Vodka makes you more likely to buy $18 peanuts.

2 bon_supp April 2, 2014 at 1:35 pm

The linked study lists NY, NY peanuts as $7.13 per portion and then in a different table (the one referenced in the Quartz article) lists them as $16.76. The vodka numbers are reversed between these two tables in the exact same manner.

Sorry theorists – I think this is simply a case of switched data columns.

http://www.multivu.com/mnr/70425518-tripadvisor-tripindex-reveals-las-vegas-most-expensive-for-room-service?_ga=1.103499138.304337612.1396459724

3 byomtov April 2, 2014 at 4:21 pm

This sounds like the best explanation. My bet is on data error rather than subtle marketing strategies.

4 Rahul April 2, 2014 at 4:37 pm

Ah! Pulling off a Reinhart Rogoff…..

5 Age Of Doubt April 2, 2014 at 11:05 pm

Oh my God, you’re right. That’s brilliant. They should give the booze away for free, but charge $20 for the snacks.

6 loveactuary April 2, 2014 at 8:03 am

agreed, and they may rely on expensive complementary goods like cranberry juice or sprite or jell-o mix

7 Ted Craig April 2, 2014 at 9:09 am

Exactly. Few (non-Russian) people would drink vodka straight.

8 kiwi dave April 2, 2014 at 10:52 am

Exactly. The vodka is cheap, but they get you on $6 for a tiny can of tomato juice or bloody mary mix.

9 Mark Thorson April 2, 2014 at 11:30 am

According to 60 Minutes, those hotel mini-bars are rigged.

10 Mattias Svensson April 2, 2014 at 8:29 am

A related question I’ve thought about is the happy hour pricing, going directly against the marginal pricing of consumption of further units. You pay little for the first units and full price for the ones late at night. I think what has to be modified is the assumption of rationality 🙂

11 anon April 2, 2014 at 9:15 am

Happy Hour is more about price discrimination and the fact that restaurants have high fixed costs to be open and very low marginal costs for actually serving any food/drinks.

12 Jonathan April 2, 2014 at 9:32 am

Three factors: (a) a smidgen of irrationality by the consumer (although if that were really it they’d figure out a way to make everyone’s first drink really cheap… in fact, most bars give a free drink (“bartender’s buyback”) after a few; (b) Trying to get people in early to justify costs of opening (as anon says below); and (c) the first drink has a fixed cost for the customer as well as the highest marginal utility — the cost of getting to the bar. Happy hour offsets some of the fixed costs for customers willing (in expectation0 to consume more in aggregate.

13 (Not That) Bill O'Reilly April 2, 2014 at 9:42 am

I’ve always thought of happy hour in terms of competitive pressures and price discrimination—it’s the time of day when demand is highest (everyone looking to grab a drink after work), but probably also most inelastic (there are lots of other demands on people’s time to go home and see the kids or whatever), so establishments are competing against both each other and those competing obligations; the demand of late-night/weekend consumers is more inelastic, as those are the people who want to be out late and don’t have something else going on.

14 Rahul April 2, 2014 at 9:47 am

I don’t think demand is highest at happy hour. Most bars get full much later.

15 (Not That) Bill O'Reilly April 2, 2014 at 10:28 am

I may be unfairly extrapolating from my own experience, but the end of a long day is when I could most use a drink; so at the very least, the potential demand is quite high—it’s just also highly inelastic compared to the demand that comes later in the evening.

16 Rahul April 2, 2014 at 11:04 am

You mean elastic?

17 Paul April 2, 2014 at 1:14 pm

I don’t own a bar, but I’d imagine happy hour as more of demand leveling to deal with inventory issues, and can even be modified for specific excess inventory via product specific happy hour drink specials.

18 jmo April 2, 2014 at 9:39 am

The interesting fact is that the vast majority of hotels operate their minibars at a loss, despite the high prices.

19 Rahul April 2, 2014 at 9:52 am

Why? Labor or theft?

20 jmo April 2, 2014 at 10:06 am

Labor mostly. And low volume.

If you’re talking about a higher end Hilton, Marriott or Hyatt your most frequent guests are going to get club level access to sodas, snacks, and cheap drinks. Your tourist guests aren’t going to spend the money. So, you have a lot of labor and low volume.

As for theft, most places have sensors that charge you if something is removed for more than x seconds.

21 wiki April 2, 2014 at 10:51 am

Given the low volume, I’m surprised that the hotels don’t try to mix genuinely cheap stuff (a few items that are comparable to what’s available at a nearby shop) with more expensive impulse buys. I don’t even look at a minibar most times. But surely more tourists would use it if there were half a dozen prominently discounted items. They could then move product while getting the big wins from the same impulse and expense account buyers they do now. I do wonder whether they’ve done the pricing research on this or just continue with tradition and managerial intuition.

22 jmo April 2, 2014 at 11:00 am

I was staying at the Andaz on 5th in NYC and they have gone with free minibars. I think they did the research and adding $20 to a $500/night room rate ends up with a better customer experience than keeping all the minbars filled and guests not using them due to high prices.

23 Someone from the other side April 2, 2014 at 11:01 am

I doubt there are many (if any) expense policies left that cover mini bar charges.

Main reason they have them seems to be that they are required to get the stars.

24 jmo April 2, 2014 at 11:16 am

“I doubt there are many (if any) expense policies left that cover mini bar charges.”

Most places I’ve worked at have gone with either per diem or dollar limts. If you don’t get to the hotel till 11pm and all you want is an $8 diet coke and a $8 Snickers – that’s fine.

25 PD Shaw April 2, 2014 at 11:39 am

There was a recent article, perhaps linked here, that lamented that mini-bars were being discontinued at many hotels.

26 PD Shaw April 2, 2014 at 11:46 am

“While reliable numbers are hard to come by—in part because of the changing definition of minibar, which may now include trays of gourmet snacks in addition to the iconic refrigerated unit—the upper-tier hotels to which I have often turned for solace seem to be forsaking the minibar, while most of the cheap hotels where I’ve passed out after long days on the road never had them to begin with. Travelers like me, dismayed to find themselves in a room without a minibar, are now expected to order room service or buy a soda from a vending machine or a nearby 7-Eleven. Hotel bean counters prefer the Internet—an in-room amenity that never spoils or requires restocking.” Elegy for the Minibar

27 Someone from the other side April 3, 2014 at 7:56 am

In my case, I could always claim the per diems regardless. So the 8$ coke was really out of my pocket, still.

28 Sean P. April 2, 2014 at 11:01 am

Last year I stayed at a hotel where non-alcoholic beverages were free but alcoholic beverages were not. I think they were really hoping I’d open the mini-bar looking for a bottle of ice tea and conclude that I’d be much happier with a $7 bottle of beer.

29 Rahul April 2, 2014 at 11:06 am

That sound like bars offering $1 Miller Lites & hoping that’s not what reasonable people will drink all night.

30 Donald Pretari April 2, 2014 at 10:07 am

I’m shocked to find out that people actually look at the prices for items in a hotel minibar. I thought it was used either out of desperation or recklessness, with a devil may care view of the cost. I would have priced the most popular items highest.

31 Mike April 2, 2014 at 10:16 am

“desperation or recklessness, with a devil may care view of the cost.”

Sure sounds like someone who just drank vodka, to me!

32 Will McLean April 2, 2014 at 10:31 am

The vodka bottle is 1/10th the volume of the water bottle.

33 Vernunft April 2, 2014 at 10:49 am

This. What a silly discussion without knowing that fact.

34 kiwi dave April 2, 2014 at 10:56 am

Not really. Comparing fluid ounces of water vs vodka is silly, because you’re not drinking vodka to quench your thirst, and your not drinking water to get drunk.

35 Rahul April 2, 2014 at 11:08 am

Bulk per kg. price of potable water is less than 1/1000th. that of pure ethanol. So I doubt quantity makes things any more rational

36 Jazi Zilber April 2, 2014 at 11:24 am

the price makes the markup.

for low priced items: 1) low revenue if not expensive. 2) the markup is not high enough to motivate a person to go to the store.

for vodka, additionally one might enoy it more outside. also, there is little urgency for drinking vodka. making the client less forced to buy now

37 Tom T. April 2, 2014 at 11:54 pm

It’s price discrimination: The non-alcoholic items are liable to be grabbed by kids whose parents aren’t paying enough attention. I.e., they are consumed by little people who are maddeningly insensitive to price.

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