Reducing the impact of No-Shows For Restaurants and Bars

Everybody happy in the UK restaurant and bar sector? Would £10 billion make you feel better?

A couple of key stats have caught my eye over the last couple of months that I've been mulling over. 

Firstly, it was reported back in October 2018 that 37 out of the top 100 restaurant and bar groups in the UK are loss-making. Concurrently, the total pre-tax profit of the entire group of 100 groups fell to just £37M, a drop of 89% on the year 2017. Whilst this most recent festive period has shown several groups with decent like-for-like improvement, you can bet your bottom dollar that the sector is in for a rough ride for the next few months. 

Secondly, in an article at the beginning of September 2018, Tim Hayward of the FT laid the blame of the perilous state of the UK restaurant and bar sector to No-shows. Which, according to research, account for around 15-20% of all online bookings (it varies somewhat depending upon the day, time, location, brand etc), but this loss is estimated to be worth circa £16 billion* to the UK restaurant and bar sector (not just the top 100 operators). 

It seems apposite to me then that if the scourge of the no-shows can be reduced then the turnover and profit of the major groups will naturally increase. If, for example, no-shows are reduced to a more reasonable 5% then an additional £10 billion revenue to the sector will be delivered. 

According to the FT article, the rise of no-shows is somewhat self-inflicted by the sector, by the increasing prevalence of the major booking portals and associated reservation software. By inserting themselves as interlocutors between the venue and the customer they have diluted the relationship, with the result that customers are increasingly flippant about whether to rock up at their pre-arranged time and if they decide against attending they are not sufficiently contracted to let the venue know. I know from prior experience that it is not uncommon in the late night sector for customers to book multiple venues for the same time, allowing them to make a choice on a whim, as to which one to attend. 

With so much money at stake, several strategies have been presented to deal with no-shows, each with positive and negative attributes:

1. Get customers to pay a deposit/pay upfront - this works well for bigger parties who may have complex requirements, and for reservations booked more than a day in advance. It seems to work less well for small parties (think a couple going out for lunch) or for same day reservations, where the need to pay a deposit to make a booking may appear contrary to the 'casual' experience expected. So, whilst it is certainly possible to pre-charge everyone, the result may be a reduced conversion rate as in the UK people may feel culturally aggrieved at the prospect of paying upfront just to sit in a restaurant or bar. 

2. Tokenisation and fines - This is where you take credit card details but do not charge in advance but make it clear that you will charge the card if the customer fails to turn up. As with paying a deposit, this works well with larger groups and advance bookings, but the downside is that if you do bill the card then the customer will likely never return, having felt that they will have been punished by the venue. Plus, the amount billed is likely to still be less than the amount likely to have been made from the reservation. The marketing impact of this approach may resonate beyond that single event because as we all know, an unhappy customer makes much more noise than a happy one, so the ripples may be resonate more widely. 

3. Social Media Flaming - Or 'Social Suicide' as it should be known. Slagging off customers in public is never, ever a good idea, doing it on social media just provides a record for everyone else to see how nasty you are. 

4. Blocking - Nearly all the reservation platforms provide the ability to see if the customer has been a no-show previously and/or to block them from making a new reservation. This approach should be used lightly, as there may be reasons why the reservation was not cancelled and the customer failed to show. Of course, serial abusers should be blocked but single offenders should be treated with a little more compassion, regardless of the pain they have caused. Furthermore, this is generally a post-event action and as the majority of customers (70%+) are first-time visitors then it's a case of 'horse bolted, gate open'. 

5. Call/email and Confirm - It's easy to absolve responsibility and rely on technology to take automated command of all pre-and-post reservation communications, but there is always a place for human-to-human communication. A phone call to reconfirm a booking ensures that the customer hasn't forgotten and also reminds them of their obligation to honour the contract. However, it requires dedicated human resource and as with the other options, really only works for advance bookings and those of larger party size. 

Are serial offenders at the root of the problem? It is clear that technology allows customers to disassociate themselves from an emotional contract with the restaurant or bar where they have made a reservation, and that there are those that are repeat offenders, making reservations at multiple venues and then electing to make their final choice on a whim, but this behaviour may only show to an individual venue as a single offence, rather than a sectoral abuser, and as such it is difficult to identify and take appropriate action. 

So here's an idea that may solve the problem 

In a similar manner to credit rating, it seems to me that restaurants and bars would benefit from the ability to risk-rate customers at the point of taking their reservation. To enable this, reservation platforms would need to share their data on no-shows to an independent third party service. This dataset would then be queried by individual restaurants and bars (in real-time) via their chosen software to apply a risk rating to the customer. The risk rating would then allow the software to apply the optimum strategy to ensure the customer committed to their reservation. The benefit to this is that the risk rating is generated from aggregated data, so would be based upon the customers' relationship with the sector rather than a specific venue. For example, if a customer is a repeat offender across multiple venues/reservation platforms in a region then a larger deposit or payment in full upfront could be requested, or the enquiry automatically refused, or if a first-time offender with an otherwise decent track history then the venue could decide to take no action as the risk of no-show is within acceptable limits. As with credit ratings, if customers continue to no-show then their risk rating would increase (get worse) but equally they would have the ability to rebuild their reputation by being a good customer and attending their reservations. 

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*I found this figure referenced in a couple of articles, indeed some say the cost is much higher. It wasn't clear how the figure was calculated or if there was an independent report that verified it.