The Economics of the Mini-Bar
The Thursday, September 14, issue of the Wall Street Journal reports on yet another consumer anomaly . . .as if we didn't have enough holes in the once-munster-but-now-swiss-cheese body of economic wisdom. This week's anomaly of choice: The hotel mini-bar As reported: "Dave Hofert wouldn't think twice about slapping down $7 for a drink at the hotel bar. But spending anything close to that on an oversized box of MM's or a miniature bottle of Jack Daniels from the hotel-room refrigerator makes him crazy. "I just don't even go there," says Mr. Hofert, a business development manager at Sun Microsystems Inc. It isn't that the $5 sack of designer potato chips would cause trouble on the business-trip expense report. "It's the principle -- you feel like you're getting ripped off ... a hotel room beer will cost around $4 to $5 for a Bud -- and all I can think of is 'I could go buy a six-pack for $3.99.' " Business travelers will shell out double-digit bills for a half grapefruit and coffee at a business breakfast without blinking an eye. But they seem to morph into penny pinchers at the very sight of a hotel-room minibar. "There's these little psychological quirks we all have and minibars are one with me," says Neal Boortz, a radio talk-show host in Atlanta. "When you go to a hotel bar there's a level of service and atmosphere. When you walk into your room and open a cheap refrigerator, there is no atmosphere and there is no service and you wonder 'what in the hell am I paying for here?'" For beleaguered road warriors, the minibar represents just one more way to be fleeced. "It just grates on you," says Mr. Hofert. Fasten your seat belts -- it's going to get worse. Minibars are modernizing. Frequent fliers who have fooled the system in the past by taking something and then replacing it at the corner store for a fraction of the cost might want to think twice next time a Kit Kat craving strikes. That old bait-and-switch tactic won't fly with the new generation of automated, infrared minibar systems. You heard right. Infrared. Connected to the front desk. Minibar Systems, a supplier that has installed minibars in 360,000 hotel rooms world-wide, introduced a model with infrared sensors two years ago. The AutoClassic, which automatically charges the hotel room when a product is lifted from the minibar for over 10 seconds, has so far been installed in 20 U.S. hotels, including the San Jose Fairmont, Holiday Inn Wall Street and the Venetian in Las Vegas. The systems may seem sneaky to some, but the fact is hotels can't rely on guests telling the truth about their in-room snacking habits if they really want to make minibars profitable. After all, hotel guests have been known to refill Evian bottles and even miniature vodka bottles with tap water to avoid being charged. "The problem with the old honor system is there was a lot of shrinkage -- up to 18% of things wouldn't get paid for," says Richard Williams, president of food and beverage services at HVS International, a hospitality consulting company in Rockville, Md. "The automated systems bring shrinkage down to 2%." The infrared systems are much more expensive to install, but they also eliminate the labor expense of hotel staff having to physically check rooms for minibar usage. And while the majority of hotel-room minibars in the U.S. still operate on the honor system, infrared systems are the wave of the future, says Mr. Williams. Put off by high-tech junk food guards? The AutoClassic may be Big-Brotherish, but it's a lot more approachable than the old Robobar, a vending-machine model that requires hotel guests to punch in a key and lift a tab to get a product, which is then automatically billed to the room. "The vending-machine style is on its way out because it adds a barrier to the customer," says Kevin Ryder, marketing manager at Minibar Systems. "You want it to look like you can just grab it." "Grabbing it" is what minibars are all about. Stephen Roussakis, projects coordinator at the Cancer Research Society in Montreal, doesn't consider himself a junk-food junkie. Still, when he's traveling and he sees something in the minibar that looks "enticing," he says, "I'll take it." "It's like an emergency thing ... like when [there's a fire], you break the glass." He doesn't always indulge, but he always opens the door, just to see what's inside. "It's like, at home, you think about cost, but on vacation you don't." And that sense of escapism is no different for a road warrior, he says. "When I first started traveling a lot, I worried about expense reports. ... I've gotten over that." Sure, he'd rather pay less, but nowadays he has no problem with overpriced in-room binging. "I feel ripped off paying $7 for popcorn at the movies too," he says. "But I buy it anyway." [END] New York, NY
Re: The Economics of the Mini-Bar
I think we can still reconcile this problem with convenience being a missing component. While the discussion about the same product that is in the mini-bar being available at the corner store at a lower price is true - it doesn't seem to be relevant. Arguments why they would tend to use the minibar: Business travelers are the group we are typically talking about - 1- They may or may not know where the applicable corner store is, and would also be more likely not to have low MC transportation available to get there. 2- Opportunity cost -whether framed from the perspective of time needed to finish preparing for the meeting or presentation associated with the trip, or that when all is prepared a business trip can appear to its "consumer" more similar to a paid for vacation - the convenience of the minibar could arguably be worth more to this group on the road. Now that I have said all this, it occurs to me that the question may actually be why does this group seem to have a higher price elasticity when traveling (where if anything it should be lower - if the company is covering some or all expanses for this group). Could it be that the MB of each dollar is not equal (and they have already paid prices which seem out of bounds for air fare)? My real question is not if people will whine about the prices in minibars (they will), but will their behavior change? Are the reduced shrinkage estimates mentioned in the article (due to stopping patrons from switching products) showing lower turnover for products counting the "switch" as turnover (i.e.- do these hardened criminals now purchase the items they were getting before in the same proportion)? I suspect most do not now purchase from the minibar. As to the hotel bar Vs minibar comparison - the only thing these products would seem to have in common to me is that they are both alcohol (and/or snacks). This is not a preemptive statement that one is better- just that they seem fundamentally different to me. Brian Moore ESI Corporation -Original Message- From: [EMAIL PROTECTED] [EMAIL PROTECTED] To: [EMAIL PROTECTED] [EMAIL PROTECTED] Date: Thursday, September 14, 2000 12:50 PM Subject: The Economics of the Mini-Bar The Thursday, September 14, issue of the Wall Street Journal reports on yet another consumer anomaly . . .as if we didn't have enough holes in the once-munster-but-now-swiss-cheese body of economic wisdom. This week's anomaly of choice: The hotel mini-bar As reported: "Dave Hofert wouldn't think twice about slapping down $7 for a drink at the hotel bar. But spending anything close to that on an oversized box of MM's or a miniature bottle of Jack Daniels from the hotel-room refrigerator makes him crazy. "I just don't even go there," says Mr. Hofert, a business development manager at Sun Microsystems Inc. It isn't that the $5 sack of designer potato chips would cause trouble on the business-trip expense report. "It's the principle -- you feel like you're getting ripped off ... a hotel room beer will cost around $4 to $5 for a Bud -- and all I can think of is 'I could go buy a six-pack for $3.99.' " Business travelers will shell out double-digit bills for a half grapefruit and coffee at a business breakfast without blinking an eye. But they seem to morph into penny pinchers at the very sight of a hotel-room minibar. "There's these little psychological quirks we all have and minibars are one with me," says Neal Boortz, a radio talk-show host in Atlanta. "When you go to a hotel bar there's a level of service and atmosphere. When you walk into your room and open a cheap refrigerator, there is no atmosphere and there is no service and you wonder 'what in the hell am I paying for here?'" For beleaguered road warriors, the minibar represents just one more way to be fleeced. "It just grates on you," says Mr. Hofert. Fasten your seat belts -- it's going to get worse. Minibars are modernizing. Frequent fliers who have fooled the system in the past by taking something and then replacing it at the corner store for a fraction of the cost might want to think twice next time a Kit Kat craving strikes. That old bait-and-switch tactic won't fly with the new generation of automated, infrared minibar systems. You heard right. Infrared. Connected to the front desk. Minibar Systems, a supplier that has installed minibars in 360,000 hotel rooms world-wide, introduced a model with infrared sensors two years ago. The AutoClassic, which automatically charges the hotel room when a product is lifted from the minibar for over 10 seconds, has so far been installed in 20 U.S. hotels, including the San Jose Fairmont, Holiday Inn Wall Street and the Venetian in Las Vegas. The systems may seem sneaky to some, but the fact is hotels can't rely on guests telling the truth about their in-room snacking habits if they really want to make minibars profitable. After all, hotel gues
