Minibar Economics

I was in Norwich for a workshop and staying at The Georgian Townhouse on Unthank Road close to the city centre. This is a really nice hotel, my room had a Nespresso machine and a small Smeg fridge.

There was also a minibar with soft drinks, beers, wines, and snacks. The minibar was also quite expensive, so I didn’t have anything from there. I appreciate that the minbar could be a nice little earner for the hotel, but I wonder how inelastic the demand is for stuff from the minibar. 

As an economist, inelastic demand means simplistically that if you raise the price of an item, then though the demand for that item falls, the result is that you in fact get an increase in revenue.

With an elastic demand, when you raise the price, demand falls by a greater proportion, as a result you get a fall in revenue.

Generally the elasticity of a product is dependent on the availability or closeness of substitutes. So in a hotel room you can either have something from the minibar or not have something. You could pop down to the bar, or even out to a shop, but that requires effort. There is the fact that there is probably a point in time when you want something from the minibar, and you really want it, so much so you need it. Then you are probably more willing to pay extra. Then there is the urgency, if you want something, but are willing to wait, or you know you are going to want it later, then the time you have will make it easier to find and source substitutes. So buying something on the way to the hotel, rather than waiting until you are at the hotel.

So as the demand for drinks and snacks in a hotel room, is very likely to be inelastic for most people staying in a hotel room, then it makes economic sense to price accordingly.

I think I would probably buy stuff from the minibar if it was more realistically priced. As it was, most times I buy snacks and stuff from the supermarket before I travel, or pop to a local shop. In city centres now there is also a wealth of small branches of the major supermarkets with longer opening hours, again providing more accessible alternatives.

One other factor that probably needs to be taken into account is the growth of online delivery services such as Uber Eats or Deliveroo that allow you to buy groceries and have them delivered, I wonder if that has an impact. I certainly have seen people have food delivered to their hotel from Uber Eats or Deliveroo. 

Maybe it is time for hotels to think about their minibar and minibar pricing. Though I should also point out that in many hotels I now stay in, they don’t even have a minibar anymore.

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