To Charge or Not To Charge?

Charging guests for booking a reservation that they don’t show up for is becoming more popular.  Ten years ago, this was a practice in the big cities like New York, Chicago, and Los Angeles. When this practice began, I must be honest I told my customers not to do this charge because it could cost them clients. When restaurants began charging guests the three-percent credit card fee, I was against that as well. Again, times are changing and so is my opinion about what charges are appropriate to put back onto the guest. However, I also believe that a number of restaurants have gone too far when it comes to charging a number of other items to the guest. 

What Products or Services Should Restaurants Charge For?

Let’s start with the reservation charge. For now, I have recommended to my clients to only utilize the reservation charge during holidays (Mother’s Day, Christmas, New Years, Easter, etc.). One of my fine dining clients did not do this charge this year on New Years and cut off reservations at 140. Their New Years Eve package was a well-publicized $130 per guest. Once they hit the 140, they stopped taking reservations. Unfortunately, 30 guests did not call to cancel their reservations, nor did they show up. Essentially these no-call/no-show diners cost the restaurant a minimum of $3,900. I find this to be unacceptable on the part of patrons and starting this new year we are letting the guests know that we are implementing a full charge to their credit card if they cancel in less than 24 hours. We will also do some overbooking so that the restaurant and the servers don’t lose out on any income. 

Who Pays The Credit Card Fee

I was against this pre-COVID but so much has changed since then I now believe that the guest should pay the credit card fees.  Making a profit in the hospitality industry was tough Pre-COVID, but today it is nearly impossible. Food prices skyrocketed, beer and alcohol prices went up and containing costs has been like trying to catch a tiger by the tail. Labor cost has jumped substantially that some states are going to see employee’s wages go up $5 per hour in 2024.

Ten years ago most of my clients were making a new profit of 12 percent or better. Today, many operators are lucky to hit between five to eight percent and those numbers are shrinking. For me, the math is simple, if your operation does $1,000,000 and you charge back the credit card fees to the guest you have just dropped $30,000 to the bottom line. This simple changed the outlook for many operators from loss to profit. I do have clients that are avoiding this and continue to raise their prices to make up for the fee, but this can only go on for so long before their guests stop coming in because they feel the prices are too expensive.

Fees That Should Not Be Charged

One famous fee added to some checks is the “temporary inflation” fee. The “inflation” has ranged from three to as much as 10 percent of the total check. This fee is a perfect example of raising the menu price rather than having the guest see this on their check. In addition, other restaurants are putting on “health care” fees or “employee benefit” fees. 

I find these fees to be at the very least unfair and at most deceptive and here is why;  I have seen restaurants add these fees onto the check that they give me at the end of the meal when, if they were confident or proud of what they were doing they would have a nice big sign at the host desk that says we will be adding the following fees to your check – five-percent inflation fee, five-percent employee health care fee and a four-percent PPE charge. 

Where Does This Leave Us

Charge what is appropriate and give each decision a lot of consideration. This is a conversation worthy of including your management and staff. In the end you may charge the guest some of the items we discussed, and the rest of the increase will come in increased food and beverage pricing. Be thoughtful, these are huge decisions.