Restaurants are increasingly charging patrons' credit cards even before they enter the building, much less place an order for food or beverages.
Restaurants are increasingly charging patrons' credit cards even before they enter the building, much less place an order for food or beverages. (Photo : by Michael M. Santiago/Getty Images)
Called a "reservation fee" and assessed at the time of booking, the price varies in size but often irritates guests who don't want to be stuck paying what may amount to hundreds of dollars if their plans for dinner, for example, a party of four, alter at the last minute. However, this is the very reason restaurants are starting to charge for them.
Because they operate on extremely low profit margins, restaurants may experience financial hardship if a sizable group of people abruptly cancels a reservation. In the case of a last-minute cancellation, operators can lessen the pain by charging $25 or so per head for no-shows, albeit this still doesn't make them whole. The costs also incentivize visitors to stick to their schedules.
The popularity of online restaurant reservation services like Resy, OpenTable, and others has also made it simpler to get and handle credit card data from clients.
Effectiveness of Reservation Fees
Brian Warrener, a professor of food and beverage operations management at the College of Hospitality Management at Johnson and Wales University, emphasized the effectiveness of reservation fees, stating that they provide diners with a sense of commitment and serve as a strong incentive to honor their reservations. These fees vary among restaurants and can even fluctuate within a single establishment based on demand.
Typically, when diners fulfill their reservations, these fees are subtracted from the final bill. According to Warrener, this approach has proven to be more successful than adjusting food prices, which many diners have resisted.
When booking a reservation at the Torrisi bar and restaurant in Downtown Manhattan, each individual must pay $50. The deposit is applied to the total cost if customers show up. Clients can cancel a reservation and receive a refund of their money up to 12 hours prior to the scheduled reservation time. It's one of the more expensive reservation fees available; most restaurants charge no more than $25 per person.
OpenTable statistics indicates that 28% of Americans claim they haven't arrived for a reservation they had booked in the last 12 months.
Large party cancellations or partial arrivals pose significant challenges for restaurants, leading to food wastage, increased labor costs, and a notable impact on revenue.
Brian Warrener, a professor at the College of Hospitality Management at Johnson and Wales University, highlighted that while imposing fees for no-shows might not fully compensate for the losses incurred from large party cancellations, it serves as a deterrent and motivates customers to honor their reservations.
Warrener emphasized that the financial gain from imposing fees on no-shows doesn't match the revenue generated from hosting large parties. However, the possibility of being charged a fee encourages customers to prioritize their reservations to avoid unnecessary expenses.
However, given the abundance of eateries that don't charge for reservations, not every establishment can justify requiring a deposit up ahead. "A consumer who doesn't want to pay a reservation fee because they may not show up has the opportunity to go elsewhere; it's just likely that elsewhere is going to be a less desirable location," Warrener stated.
During the COVID-19 pandemic, restaurants faced significant challenges due to restrictions, prompting many establishments to adopt strategies aimed at safeguarding their revenue.
Apostolos Ampountolas, an assistant professor of hospitality finance at Boston University School of Hospitality Administration, highlighted that the implementation of reservation fees by restaurants is not primarily intended to increase profits from diners. Instead, these fees serve as a financial safety net to mitigate revenue losses and minimize the impact of no-shows, which became more pronounced during the pandemic period.
Customers also find it less painful to pay a reservation charge, which is usually subtracted from the bill when a party arrives, than to pay increased menu costs.
"It helps restaurants maintain their bottom lines. It's increasingly clear coming out of the pandemic how tough it is for operators to run a restaurant with financial stability. That's why they are taking a more practical approach to managing reservations," Lilly Jan., a food and beverage consultant, said.
