Battling restaurant no shows

Today’s Wall Street Journal has an article on one of my favorite topics: people who don’t keep their restaurant reservations (Knives Are Out for No-Show Diners, Mar 14). Given slim margins, people not showing up and the resulting loss sales can be a significant problem.

The impact of an empty table can be a significant in an industry where average profit margins run as low as 3% to 5%. In cities like New York, it’s not unusual to find 20% of diners unaccounted for on any given night.

In the video below, the article’s author discusses some of the things restaurants are trying to limit no shows, from imposing cancellation fees to shaming people on Twitter.

As I have posted on this blog before, I actually have a paper that deals with why restaurants offer reservations. One of the questions we deal with in that paper is how firms can mitigate no shows. While we didn’t consider public humiliation, we do consider no-show fees.

Setting these fees is an interesting problem. There really is a question of what is enough to catch people’s attention and alter their behavior.

According to online-reservation system OpenTable, 10% of restaurants nationally seek credit-card numbers for certain reservations, while about 15% of restaurants in New York do so. Those numbers have been trending down, the company says. …

Often, the price charged for a no-show doesn’t compensate a restaurant for its loss. At New York City’s Del Posto and Jean-Georges, the no-show fee for OpenTable.com reservations is $50 a head. In October, Mr. Nieporent’s Corton began requiring credit cards to reserve tables on Friday and Saturday nights and charging no-shows a $50 fee if they don’t cancel 48 hours ahead.

Daniel Patterson, the owner of Coi, says that when he started a $25 and then a $50 penalty for no-shows about three years ago, he saw few results. It wasn’t until he upped the amount to $100 that the rate dropped from 20% to 10%. “Our menu is $165, so we’re still losing money,” he says. “It’s really not about charging people. It’s really more about making sure they’re serious about the reservation.”

I’m not fully convinced that a $100 charge doesn’t really compensate the firm. Yes, the menu costs more and no shows don’t buy wine, so revenue is lower. But how much of the cost was incurred if someone cancels, say, 24 hours out? Admittedly, there is an opportunity cost of  not offering the seat to someone else, but if reservations are usually gone weeks out, does it matter whether the cancellation is made 24 or 48 hour out?

That said, one group certainly gets a raw deal on no shows: the staff. Servers and bus boys don’t typically share in the no-show fees so when a table sits idle for the night as opposed to throwing off a hundred dollars in tips, they take a hit.

A final point, one of the restaurateurs in the article that taking reservations electronically increases the no-show rate. I’m not sure that is actually true. An on-line system actually makes it easier to cancel one’s reservation since one does not have to wait for business hour etc. Further, an on-line system can limit some reservations shenanigans. The host in the video mentions making several reservations for one evening (see also this NY Times post). A system like OpenTable doesn’t let you do that.