It's no longer unusual for restaurants to charge patrons before they even set foot inside the establishment, let alone place an order.
Known as a "reservation fee" and applied at the time of reservation, the fee varies in amount but can frustrate customers who don't want to be responsible for potentially hundreds of dollars if their dining arrangements — for instance, a group of four — change unexpectedly. However, this is precisely why more and more restaurants are adopting this practice.
With slim profit margins, restaurants can face financial losses if a large group decides not to show up for a reservation. While charging a fee of around $25 per person for no-shows may not fully compensate for a last-minute cancellation, it does help mitigate the impact. These fees also serve as an incentive for guests to honor their commitments. The proliferation of restaurant reservation platforms like OpenTable, Resy, and others has made it easier to collect and manage customers' credit card details.
"[Reservation fees] do give diners some skin in the game and serve as powerful motivation to show up," said Brian Warrener, a food and beverage operations management professor at the College of Hospitality Management at Johnson and Wales University.
The fees vary from restaurant to restaurant, and even at a single establishment, based on customer demand at a given time. When diners show up, the fees are typically deducted from a party's final bill.
This tactic has proved to be "a better model than adjusting the price of food, which most diners balked at," Warrener said.
Torrisi bar and restaurant in Downtown Manhattan requires a deposit of $50 a person upon making a reservation. If diners show up, the deposit is applied to the final bill. Customers have 12 hours before the time of the reservation to cancel the booking and get their deposit back. It's among the higher reservation fees around; fees at most restaurants are $25 per person or less.
According to data from OpenTable, 28% of Americans say they haven't shown up for a reservation they made in the past year.
When a big party cancels, or only partially shows up to the table, it can lead to food waste and excessive spending on labor costs — because of servers not having enough work for the evening. It all adds up to a substantial hit to restaurants' revenue.
"If you would end up with a 10%-20% net profit at the end of the night from a large party, you're not going to make that up [by] tacking a fee onto no-shows. There isn't nearly the kind of payoff you get from a big party," Warrener said. "But, they are likely to have people make every effort to show up, because nobody wants to be nicked $100 for nothing because they missed their reservation."
But not all restaurants are in a position to require a deposit upfront, especially when consumers can choose from plenty of restaurants that do not charge for reservations. "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 said.
Safety net for restaurants
Restaurants famously struggled during the COVID-19 pandemic when restrictions were in place. As a result, more establishments have implemented measures designed to protect themselves against revenue loss.
"A lot of restaurants had issues with profitability, so they started thinking about implementing fees. A reservation fee is not to get more money out of diners, it's a financial safety net to prevent revenue loss, or to reduce the number of no-shows," said Apostolos Ampountolas, assistant professor of hospitality finance at Boston University School of Hospitality Administration.
Paying a fee for a reservation, which is typically deducted from the bill when a party shows up, is also less onerous for consumers than facing jacked up menu prices. "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," said food and beverage consultant Lilly Jan.
Far cry from simpler times
With reservation fees, restaurants are treating dining out more like an experience, such as an event or hotel stay. It's not uncommon for hotels to similarly require nonrefundable deposits on guest rooms that can amount to half the cost of a stay. Guests also routinely pay in advance, and not after the fact, for tickets to shows and events.
"You're making a reservation like going to a show or any experiential moment. You're buying that access and they're selling you a prepaid ticket," said Stephen Zagor, a restaurant management professor at Columbia Business School.
When framed as more of an experience, it's not unreasonable to expect a charge to be attached, he said. But no consumer likes having to pay for anything that was once free.
"It's not out of line with expectations, but it's new to us," Zagor said. There was a time when we used to get everything for free and now suddenly things are a lot more complex."
