Whilst customers assume we are just in the business of selling food, we are also in the business of renting chairs to people who eat food. In order to maximise revenue ideally we like all of our seats occupied from the beginning to the end of service with hungry and thirsty guests.
Whilst of course many restaurants accept reservations at any time their revenue can be limited by having seats empty at the beginning of service or at the end of service as often the most popular bookings time slots in the evening are around 7pm-8pm.
Restaurants can try to mitigate this bottle neck by having two sitting times such as 6.30 and 8.30 this however does create pressure on service with potentially the restaurant being filled twice all at once which can unduly stress the front and back of house.
Other strategies to maximise occupancy are the offer of a “deal” available only at an off peak time. This dynamic pricing is how airlines and hotels work however they have complex algorithms that constantly update pricing hundreds of times a day whereas a restaurants price differential is usually just a simple early dining offer.
One of the major issues with running a reservation system is the matter of reservation no-shows which has a major impact on the profitability on our industry.
Third party restaurant reservation websites such as Dimmi in Australia and Open Table in the USA report no–shows being between 4% and 20% of all bookings made on their sites. This is obviously unacceptable and they are now starting to ban people who are frequent no-shows from using their service. Though they would only be able to identify a no-show if the restaurant can be bothered reporting them. Banning also does not make up for the lost revenue and it would seem to be easy to circumvent by re-registering with another user name.
Highlighting this problem the Sydney Morning Herald recently published an article on the issue and the fact that Dimmi has just banned 3000 users who have been consistent no-shows at restaurants that they take reservations for.
Restaurants are always trying to mitigate this loss of revenue with constant communication with customers which may entail any number of re-confirmation phone calls or emails.
This takes up significant resources and is no actual guarantee that they will turn up at the agreed time with the same number of guests they booked for. Guests of course can have genuine reasons for not honouring a booking but with such small profit margins any loss of revenue can have a major impact on viability.
Restaurants however are adapting their business model to deal with this loss of revenue. Some are adopting a “Ticket System”, just like you buy a ticket for a show or movie, you prepay for a ticket to dine at a restaurant at a certain time slot and with a minimum spend. You don’t turn up they don’t care as you have been charged and have agreed to a no refund policy.
This works well for high demand restaurants whereby the numbers of potential guests that may balk at this are more than covered by large numbers of customers who are happy with this system as they have every intention of honouring a reservation.
Nick Kokonas, the co-owner of the famed Chicago restaurants; Alenia, Next and Aviary has developed a ticketing booking system called Tock, which also features dynamic pricing. So a booking a table at 5pm on a Tuesday is going to cost you less than 7.30pm on a Saturday. Previously he was losing $260K on no-shows and had a cost of $140K in wages for reservation staff. This new platform seems to be working very well for them and they are also selling the software to other restaurants with over 1000 signed up and unlike third party booking systems they charge the restaurant no further fees. Open Table for instance charges $1 per booking and they retain all the information on your guest whereas the Tock system is controlled by the individual restaurant.
The other option of course is not to take reservations and this is becoming much more common, though restaurants such as the famed Boulcott Street Bistro, in Wellington, have not taken dinner reservations since 1991.
The no reservation policy fits well with the busy work and social lives of the modern customer, as often they don’t want to be tied to a time slot to dine that may have to be booked days in advance. They often may even not know what their dining requirements are from one day to the next.
Whilst restaurants that take reservations can be fully booked, a restaurant that does not reserve means even if you make last minute plans you will always get a meal, you just wait your turn if all the tables are occupied and often can have a drink and snack in their bar.
No reservations also means less pressure on prices as revenue is maximised and the cost of no-shows and the labour cost of running a reservation system is removed.
Mix it Up
There is a third model and that is a hybrid of accepting reservations for a portion of the restaurant and saving a number of seats for walk in guests. Two MBA students at Wharton School recently modeled this system in a paper called Pricing Restaurant Reservations: dealing with No-Shows and concluded that this amalgam of accepting some reservations and allocating tables for walk in guests was the optimal system. However they also concluded for it to work optimally it required a no-show penalty in return for what they called the no-wait guarantee.
They also concluded that when the restaurant faced a larger potential market, it should allocate less capacity for reservations and then when it exceeded a certain threshold of customer demand it is better off if it stops taking all reservations.
Every reservation system of course has its advantages and disadvantages and has to work to suit your target market and brand. If you operate a white table cloth operation that accepts reservations at any time then you have to build into your pricing a contingency to cover the no-shows and extra labour.
Restaurants can also operate a mix of any of these 3 options by say accepting reservations for lunch only but not for dinner or take bookings for parties of a certain size or at a suitable off peak time.
Whilst in an ideal world every reservation would be honoured and we would all be full from open to close, this is not the reality and we need to use systems and policies that give us the best opportunity to collect as much rent as we can from our chairs.