February 4, 2008

How can ski resorts charge so much for F&B

How can Ski Resorts charge so much for Food and Beverages?
If you have ever spent a day skiing at a resort like Breckenridge or Winter Park you probably stopped in at one of the many lodges for lunch or maybe just a beer. The food found in the lodges is usually of pretty good quality but is extremely over priced. I recently saw 24oz cans of Coors at Winter Park going for $7.50 each. The hamburgers were around $8.00. So, why can resorts charge a price for a good that is often more than double what the good would cost elsewhere? It does not seem like a rational person would pay these high prices yet, every time I step into one of these lodges I cannot even find a table to sit at because there are so many people eating and drinking the lodges’ food and drinks.
The first thing an Economist would examine is that people make choices based on their preferences, what is best for them. People do not pay $7.50 for a 240z can of Coors because Coors is the best beer in the world. The consumer chooses to pay the price because the cost of going somewhere else to buy the beer outweighs the benefits. The cost of buying the same 24oz can of Coors somewhere else would include the time it takes to get to the car, drive somewhere, buy the beer and then come back; giving up the next best thing he/she could be doing (Opportunity costs). Another thing to examine is that people make rules. Some people choose not to pay the high price for beer so they bring their own but the ski resorts will not let you bring your own alcohol into the lodges. Even those who bring their own beer must go back to their car to get it and incur the opportunity costs of whatever else they could be doing, skiing or socializing with people in the lodge. Many people simply pay the price for beer because they feel that sense they paid $80 for a lift ticket they are going to get their money’s worth of skiing and do not want to waste anytime going somewhere else to get beer. Of course, an Economist would see the price of the lift ticket as a sunk cost and would not consider it when deciding where to buy lunch or a beer.
An Economist would also note that choices made now will have an effect on us in the future. Personally, I am not willing to pay the high price for food but I am willing to pay for beer. I choose to buy burritos at Safeway (2 for $1) before I go up to the mountain. The choice to buy these burritos ahead of time means that I will either have to put them in my pockets while I am on the slopes or I will have to make a trip back to my car when I decide to eat (future costs). Bringing outside food into a lodge is frowned upon but there is no stated rule against it like with alcohol. I am willing to incur the cost of going back to my car so I bring my own food, but I prefer to sit in the lodge so I buy my beer at the lodge.
One last thing to remember is that opportunity costs are faced even if you decide to eat in the lodge and not go back out to your car. I can buy the 24oz can for $7.50 or I can wait to get the bartenders attention and give up whatever else I could be doing at that time and get a 16oz draft beer for $3.75 (and it usually takes a few minutes to get their attention on a busy day).

1 comment:

Roman Kozhevnikov said...

I have two comments on your post. First, I see the relationship of ski resorts to movie theaters. How can Tinseltown charge $4 or $5 for a small box of candy that Target, which is within walking distance, charges less than a dollar for?

But, unlike ski resorts which double the price of beer without doubling the amount of beer, Tinseltown charges just a quarter to go from a large to an oh-my-God-I-don't-think-I-can-drink-all-that soda, so I wonder how many people pay the extra quarter because it's "just" a quarter.

Just like a thrifty skier could avoid overpriced beer and food by taking a walk back to the car, a thrifty movie-goer could avoid overpriced candy by stopping by Target on the way to the movie.