There has been extensive media coverage recently, including in The Guardian, of latest industry reports which show that UK Restaurants are increasingly charging fees to customers who cancel reservations late or fail to attend at all.
Late cancellations and ‘no-shows’ have long been an issue for restaurant owners and managers, and the operators’ attitudes to them has always varied, with some relaxed, and others taking a rather more aggressive approach. However, trends show that more restaurants are now applying policies to recoup lost revenues through either requesting non-refundable deposits upon booking or issuing late cancellation or no-show penalties.
Here we will review the key practical considerations of designing and implementing a stricter no-show policy.
How punishing is your approach?
How strict your policy will depend on various factors. Restaurant owners obviously need to protect their revenue streams, and even a table of two can damage their profit margin for a sitting. So how do you maximise your covers, and protect against lost revenue, without alienating consumers with what may be deemed are over-punitive cancellation policies?
How do you communicate this to guests?
Any change in policy must be managed and communicated effectively, to avoid an influx of phone calls from confused diners. Ensure the policy is clearly explained and share the valid reasons for introducing the rules. Communicate the changes on social media and consider adding a recorded message to your voicemail and/or hold music for those guests calling to book over the phone. Clear messaging will help maintain goodwill with customers.
Are you sending sufficient reminders to existing bookings to ensure reservations are not forgotten? This can also be an opportunity to remind them about any cancellation policy.
Consumer behaviour
By deploying a new policy around late cancellations, bear in mind that you are trying to change consumer habits, and this is not going to be quick or easy. Previously there were no consequence of not showing up. Now, at the booking stage, you are testing the guests’ commitment to attending. Acceptance of the new policies will not be instant nor universal, so expect to be challenged on it.
Historically, customers were not used to paying for reservations, and could cancel late or not show up at all without any financial obligation. This meant that those that did apply these policies were often met with confusion and or resistance, with some diners even choosing their restaurant based on those not applying such charges. However, with the practice now becoming more widespread, consumers are becoming much less resistant.
Setting a ‘fair’ level
A per-head charge has proven to be very effective against no-shows. However, some would consider that top-end establishments with waiting lists of diners desperate to book, would not actually suffer from missed revenue, and as such do not need to charge a no-show penalty.
Some of these restaurants are setting no-show penalties and setting them high, charging per head the cost of a taster menu, even if you cancel in advance.
There is no set formula or industry standard to determine at what level you set no-show or late cancellation fees. But operators need to think about what costs they are looking to cover. Do you cover staffing costs? What about food and associated preparation time costs? Do you charge say 50% or even 100% of your typical cover spend? The fee needs to be sufficient to contribute towards the lost revenue, without being prohibitive and stopping people from booking in the first place due to the downside risk.
Some extremes are to charge the full price on booking, equivalent to buying a ticket to a concert or a sports event, although in this scenario flexibility should be given to allow for rescheduling if notified with sufficient prior notice.
Definitions and criteria
What is the definition of a ‘no-show’? And by what standards is a cancellation considered ‘late’?
15 mins is considered an industry standard on the fair time to wait before reallocating table, so maybe after this time the guests are considered ‘late’.
Typically, a 24-to-48-hour cancellation window is offered, after which a late cancellation fee is charged.
Further, do you only apply charges for bookings over a certain size? Or only apply the rules at peak times when you know that the table would have been booked otherwise.
Other considerations
Further questions to ask yourself and potentially build into the policy include whether you offer to refund the cancellation fees if you manage to re-book the table? Have you made it quick and easy for people to cancel?
Are you able to track no-shows – this can be a key metric to report on. You can then consider overbooking certain sittings if you know that the level of no-shows is consistent.
It is worth remembering that overall, most diners do show up on time, and/or provide fair notice on cancellations, so is it right to ‘punish’ all guests for the behaviour of a minority? How will this be received by your clientele? If many of your bookings are made by repeat local loyal customers is this policy fair?
Risk of not implementing a policy
If you do not apply a policy, you are not protecting yourself from the consequences of no-shows – as well as the financial downside, there is also an effect on staff morale, as well as the impact empty tables can have on the atmosphere and ambience of a dining experience.
Reduced no-shows make it easier to manage staff rotas and shift patterns, an increasingly important job for restaurant managers given the restrictions on the market for high quality, reliable staff.
Can you afford not to have a no-show policy?
Good reservation software will allow you to add such charges and set related policies within the platform, allowing technology to automate the administration of taking deposits on bookings and/or charging cancellation fees, with diners required to enter card details on booking. This ensures policies are implemented and applied consistently and fairly.
Hospitality has been through the toughest period, with ongoing challenges with supply chains, staffing, and energy costs. With the current squeeze on consumer spending, no-shows are only going to increase, as diners change plans last minute, or opt for less expensive alternatives. A no-show fee policy provides a financial safety net and eases pressure on cashflow. Can you afford not to have a no-show policy?
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