Can I and should I charge cancellation fees in my restaurant?

There’s been a bit of press on the subject of restaurateurs charging cancellation or no show fees recently. Knowing what a vexed subject this is, I thought that it was time I added my two cents worth to the debate.

One specific instance a while back, first reported in the Sydney Morning Herald, made me sit up and pay attention. The owner of a restaurant called Brents at Pokolbin in the Hunter Valley charged $170 (the equivalent of four meals) after a customer cancelled a booking with two hours notice. The SMH quoted the owner as saying ‘ . . . we are not in the business of unfair trading, but it’s time diners were made an example of.’

Should we charge them? A vexed subject . . .

Should we charge them? A vexed subject . . .

I must admit mixed feelings when I read this — my years in restaurant consulting have given me a strong empathy with restaurant operators and I am very well aware of the current precarious financial position of many of them. This issue has been the subject of quite a few emotional discussions over the years, especially when one of my clients has a short notice cancellation of a table of ten on a Saturday night.

Who should bear the loss?

On one side of the argument we have the question: ‘Why should the restaurateur bear the loss when a customer is disorganised, unreliable or just plain inconsiderate?’ On the other side we have the counter argument: ‘Why should I (the customer who booked the restaurant) bear the loss when Auntie Floss and Uncle Albert pulled out of the dinner at the last minute? It wasn’t my fault.’

Part of the problem is that the dining public think all restaurateurs make a fortune and are in a clear position to absorb the loss without pain, or with less pain than the individual customer (who, by the way is often earning considerably more than the restaurateur). I have enough confidence in humanity to think that if they realised the true situation they would be a lot more empathetic and considerate.

Clear, upfront communication is required

As long as the policy is presented up-front, your customers can decide if they accept it.

As long as the policy is presented up-front, your customers can decide if they accept it.

I do think it is time for a change in order to put some power back into the hands of the restaurateur, but we have to be quite careful about how we go about it. First of all I think that as long as a cancellation policy is clearly communicated to the customer at the time of booking, and a credit card number is requested, the customer is in a position to decide if they want to accept this situation or not. This would require carefully trained staff handling the phone — which would be a big step up for some operators — and if it was done purely verbally it would be unlikely to provide the legal burden of proof necessary for recovery in a court, but it would be an improvement on the current system.

What is a fair deposit?

That introduces the question of what is a fair deposit to ask? Well, I think the owner of Brents got it quite wrong. Charging the full amount you would have received from the customers if they had fronted is unconscionable in my opinion. What is the real loss if a customer does not show? Certainly not the full amount — you haven’t used any stock or any labour if you don’t service a customer. What you have lost is the profit you would have made on the transaction, not the total amount. The profit should be around 15% of your customer average spend, so I think this would be an appropriate amount to ask for a deposit.

How much notice is reasonable without penalty

Moving on, what constitutes sufficient notice for a cancellation? The consensus in our, somewhat partisan office is that 24 hours is a reasonable amount of time. After this we feel it is fair for the deposit to be retained as a cancellation fee. You may wish to adjust this amount of time to reflect your own notion of reasonable notice. Whatever you think is a fair thing — as long as it is presented to the customer up-front.

What if you retain a cancellation fee and you are able to sell the table to another customer? Should you give the money back? Strictly speaking

you probably should, but we think the poor old restaurateur deserves a bit of a windfall now and again so our vote is for them to retain it. That’s why I’d call it a cancellation fee and not a loss of profit fee.

Airlines and Hotels already do this — why not hospitality?

If a policy similar to the one I have described became the norm I’m sure it would become rapidly accepted by the public — just as it has been in the accommodation, conference and function sectors of our industry. It’s gone well beyond being merely a desirable issue to address — given economic circumstance it is now a necessity.

One slightly disturbing aspect about this whole debate is why it needs to be conducted in the media and tossed around by people like me in the first place? Surely this should have been a matter for the national industry representative organisations to decide and then initiate universally so cancellation policy is predictable and consistent when we make a booking? We shouldn’t have to wait for some frustrated restaurateur to take a public stand and risk being pilloried for attempting to address an issue that has been around for a long time and affects nearly every restaurant.