A restaurant table is one of the most perishable things you can sell. The 6pm slot nobody booked on a wet Tuesday can’t be stored and offered again on Saturday night. Airlines and hotels have been dealing with the same problem for decades and have built a whole discipline around it, while most of us were still working from a paper diary and a good memory.
That has changed quickly. Booking software now does far more than take names, and almost every guest books online. With labour costs where they are, matching what you sell to the moments people actually want it has never mattered more.
Matt Paice of Chishuru has thought about this more rigorously than almost anyone we know. Here he walks through the pre-theatre menus, counter seats and cancellation terms that let a restaurant sell the same table twice in one night. He’s just as candid about the harder part, which is what happens when guests don’t read what they’ve booked, or read it rather too carefully and set about gaming it. As Matt says, “no customer ever decided to book a restaurant because they liked its cancellation policy.” The trick is writing terms that protect your covers without costing you the guest.
Think Like an Airline Pricing, Cancellation Fees and the Guests Who Push Back By Matt Paice
For decades, airlines and hotels have spent huge amounts of time, money and intellectual effort on one question: given that the product disappears if it is not sold today, how do we sell it for the best possible price? An airline seat from London to New York on a Friday afternoon becomes worthless the minute the aircraft leaves Heathrow. An empty hotel room in Edinburgh on the first Saturday of August drops to zero value at midnight.
Restaurants have exactly the same problem. We have a fixed number of seats, limited service periods, and a product that vanishes at the end of the evening. Until recently, though, we lacked most of the tools that airlines and hotels have used for years.
‘Revenue management’ is the jargon name for the discipline that has grown around this problem. It decides what to sell, to whom, at what price, under what terms, and at what point in time. It includes not just the headline price, but also availability, booking conditions, cancellation terms, room type, seat type, length of stay, and the information shown to different customers. A cheap fare bought months in advance might have a Saturday-night stay requirement and no right to change the booking. A flexible fare bought on the day of travel might be costed many times higher, because that business traveller is likely to be highly price-insensitive.
In revenue management, the airline does not simply look to fill the plane up as quickly as possible. It holds back seats for later bookers, forecasts demand by route and day, manages fare classes, and sells extras such as bags, seat selection, lounge access, and priority boarding; it will charge a higher price for a ticket that can be modified or cancelled. It knows that the last seat on a popular Friday flight may bring in far more margin than the first seat sold.
Hotel groups measure revenue per available room, or RevPAR, which considers the combination of occupancy and room price. A full hotel at a low rate may have left money on the table, just like a hotel with very high room rates but many empty rooms. The aim is to understand demand closely enough to get the best result from the rooms available. And a small improvement across millions of seats or rooms becomes very large money. If you’d like to know more about how this all works, Dr Sherri Kimes at Cornell University offers an online course in it (I recommend it, if you’re as much of a nerd as I am).
Revenue management and restaurants
Restaurants have only really joined this conversation during the last ten years, for a couple of reasons.
The first reason is reservations software. The systems we have now have become much more sophisticated than an online version of a reservations book. They can control access to specific booking times, set table durations, collect deposits, identify guest histories, and show different offers to different groups of guests.
The second reason is that the vast majority of guests now make restaurant bookings online. They search, book, amend, cancel, and receive reminders through the same device.
The third reason is that cost pressures are forcing us to squeeze revenue and profit out of every available point of the operation. The recent dramatic escalation in labour costs means we have to be better than ever in matching our inventory with demand, and we operators work harder and harder these days to do so.
Restaurant revenue management in practice
Thanks to today’s digital customer journey, restaurants now have the ability to define different products in a way that would have been difficult (or bonkers) to try to explain over the phone.
At my restaurant Chishuru for example, we offer a pre-theatre menu at 5.30pm, 5.45pm, and 6pm. It costs £65, while our usual dinner set menu costs £105. Guests booking this menu agree (during the booking flow) that we need the table back at 7.15pm, and our reservations software SevenRooms correctly tags these bookings with ‘pre-theatre’ so the team is forewarned, and sets the correct table turn time. The point is not simply that early dinner menu costs less. We have created a separate product for a particular period of the night, and it allows us to sell the same table again for a main dinner booking.
BiBi in Mayfair offers a standard £145 “chef’s selection” dinner menu (incidentally, one of the best meals in town), while post 9pm bookings are offered a more flexible à la carte menu. This gives guests another way to use the restaurant and gives the restaurant a way to sell a later period that may suit a different group.
Cheap corkage on Monday, a reduced-price midweek menu, bottomless brunch, an early supper offer, and a late-night menu all use the same basic logic. They give guests a reason to choose time that might otherwise be difficult to sell.
Restaurants can also now manage the physical space with more detail. A table, a counter seat, a terrace seat, and an indoor seat are different products. A counter may appeal to a solo guest or someone who wants to watch the kitchen, but it may be unsuitable for another guest – more on this later. A terrace table can be attractive in summer and a nightmare in bad weather. All the good reservations systems now let you communicate these options to customers, with photos if wanted.
Cancellation fees are also revenue management.
The cancellation fee level and fee application window are also part of revenue management, since they shape customer buying behaviour.
Asking customers to pay for their meal upfront (as Michelin-starred restaurants like Row On 5 and The Clove Club do) will deter some customers but will buy the restaurant certainty in terms of labour and food spend.
At Chishuru, if you book with less than three hours’ notice, we don’t ask for card details at all, to incentivise last-minute bookings. If your restaurant has certain services that are regularly quiet, you are better off waiving a cancellation fee for them completely. (After all, no customer ever decided to book a restaurant because they liked its cancellation policy.)
Revenue management and the challenge of customer service
Unfortunately, the increased use of restaurant revenue management brings us challenges in customer service. Many guests have only just got their heads round cancellation fees.
Restaurants that segment their reservations by area run into trouble when customers just don’t read what they’re booking. One restaurant insider recently visited a hot new Farringdon restaurant. He wrote a lovely review of the food but complained bitterly three times in the piece about the fact that he was seated on the counter not on a table, despite his repeated requests to move. He said it was “nonsense” that he couldn’t be moved, and sarcastically referenced the staff “beaming messianically” when refusing his request. Even after it was pointed out to him that his dining companion, who made the booking, had absolutely definitely picked counter seating, he wouldn’t budge from this criticism. He was on the receiving end of revenue management: counter seating, for most people, is less desirable than a table and the restaurant chose to segment its booking offering accordingly.
Customers are also now having to cope with understanding short-show fees, and I see an increasing trend for restaurants to spell this out during their booking process (eg fees for “cancellations including reductions in party size”).
If you have limited seating inventory (as we do) then a party of five dropping to four makes a big difference. For this reason, I have SevenRooms set up to send an automated email to customers who have booked a five, at 10am on the day of their booking, expressing that we look forward to welcoming them that evening but that if they drop one guest and they don’t tell us until they arrive at the restaurant, a £75 charge will be added to the bill.
The solution to this is not as simple as “just waive the fee and be flexible.” There was a particularly soppy LinkedIn thread I saw this week to this effect – you can’t upset customers if you never enforce your policies! The trouble is, I don’t think the kum-ba-yah approach is good business practice: twice this year I’ve had to make late cancellations at other people’s restaurants because my companions dropped out (I do have friends, honestly), and both times the restaurants kindly waived the cancellation fee. Thing is, I haven’t rebooked either – whereas if they’d taken the fee and said I could have it as a credit, I definitely would have. This is the approach to cancellation fees that I take at Chishuru and it works well – after all, we make more money from guests actually visiting, even after the credit, than we do from just retaining the fee, and we gain the potential for a returning customer. We recently had to add one refinement that a dinner cancellation fee can only be credited against a new dinner booking, not lunch – this is to ensure that we do actually see some more revenue from their booking, rather than effectively giving them a free lunch.
The other problem with the kum-ba-yah approach is that unfortunately some customers will attempt to game the system wherever they can. We’ve had to stop taking party sizes of three or more for our 6pm pre-theatre slot because so many times we’d get a group of three or four who were just looking for that discounted price and would deliberately behave in such a way to stay on the table beyond the agreed time (one person turning up 20 minutes late, the group repeatedly saying they “weren’t ready” to order etc). At Gymkhana, London’s busiest Michelin-starred restaurant, they had to put in a £100pp minimum spend for dinner to combat box-tickers who wanted to “experience” the restaurant without actually spending very much. They then had to invest in fancy takeaway bags because customers were coming in, not eating much, and then ordering a meal’s worth of food to take away.
With short-show fees, we try to avoid charging them unless it’s bad – for example, dropping from six to four guests. Many customers have trouble getting their heads round short-show fees and I see frequent bad Google reviews from restaurants that implement it; I don’t know why since a six dropping to a four can have exactly the same impact as just not showing up for a reservation for two.
Restaurant revenue management and the future
Airlines have long been good at charging a premium for desirable inventory. A passenger can buy an aisle seat, a window seat, extra legroom, or a seat near the front. Hotels do the same with room type, view, floor, bed configuration, breakfast, and flexible cancellation.
But look at hospitality. Not long ago, some Soho bars and pubs toyed with the idea of dynamic pricing and nearly got lynched.
It’s interesting to think of the reaction if restaurants took revenue management all the way. Want a last minute booking? Fifty quid extra please. Yes our dinner menu is £145pp but if you want to sit in that corner booth then it’s £165. If you’d like to be served by our best waiters tonight, that’s another £25pp. Solo diners occupying a table of two will pay a supplement of £50. Perhaps all this will be coming sooner than we think.
Matt Paice is co-owner of Chishuru, the Michelin-starred West African restaurant in Fitzrovia, where he has been chef Adejoké Bakare’s business partner since 2021. He came to hospitality by an unusual route, spending the first part of his career in television as a channel controller, commissioning editor and executive producer, then built a street food business into two casual dining restaurants in west London, and later ran operations for a group of Italian restaurants in the City. He is also the founder of Rooik, the no-stress software platform for independent restaurants, which brings point of sale, staff scheduling, stock, compliance and analytics together in one app: www.rooik.com
