Research SummaryJuly 2015

Dr. Nanishka HernandezWalden University

Brendan RichardUniversity of Central Florida

Restaurant Revenue Management:Examining Reservation Policy Implications

at Fine Dining Restaurants

Rationale

Reservation No Shows:

Can be up to 20% to 40% of reservations1,2,4,6

Who cares?

Negative impact to the restaurant, employees and customers1

What can be done?

Overbooking

Limiting reservations

Reservation Guarantee1

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Purpose Statement

Purpose:

Examine the impact of a credit card payment policy on fine dining restaurant reservations

Focus:

Identify the difference in daily reservations made and the number of no shows

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Research Questions

What, if any, differences exist in the number of no shows before and after requiring customers to guarantee their reservations via their credit cards at fine dining restaurants?

What, if any, differences exist in the numbers of reservations made at fine dining restaurants per similar time periods?

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Participants

Participants:

Company: Restaurant Operator

Restaurants: 6 Fine Dining Establishments (In close proximity)

Location: Southeastern United States

Reservations: ~120K

Time periods: Q3, FY11 & FY12

Sample Size:

91 days (fiscal quarter) per group (27 days required to detect medium effect)

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Data Collection

Approvals:Company executives Institutional Review Board (IRB)

Data:Restaurant Identifier Restaurant reservation date Number of daily reservationsNumber of daily no shows

Statistical Tests:T-test analysisComparing: Before (2011) and After (2012) payment policy

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Findings: Descriptive Statistics

Descriptive Statistics:Analyze the data for the number of customers booked and the

number of customers no shows (DV) from six restaurants by the independent variable, quarter, during (a) Fiscal Year 2011 and (b) Fiscal Year 2012

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Findings: Inferential Statistics

Hypotheses testing results:H10: Wilcoxon signed rank test (significant decrease in no shows)

z = - 8.284, p < .001 Customer no shows was rejected

H20: Dependent t test (significant decrease in customers booked) t(90) = -10.76, p < .001 Customers booked was rejected

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Findings: Customer Satisfaction

Company Customer Survey Scores: Company monthly survey data presented no significant difference

in customer satisfaction scores for the two time periods (Q3, FY11 & FY12)

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Discussion: Reservations

The results of this study, both significant, indicate that the six fine dining restaurants studied:

Reservations: Saw a 25% reduction after the policy implementation

No Shows:

Saw a 86% reduction after the policy implementation

As a percentage of total reservations No Shows dropped from 16% (pre-policy) to 3% (post-policy)

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Discussion: Potential Benefits

A lower customer no show rate could benefit:

Restaurants: Lower labor costs via a more accurate forecast of demand Seating walk-ups before no show reservations

Improving the table utilization percentage1

Employees:

A higher table utilization could result in more gratuities1

Customer:Customer with legitimate interest more likely to get reservation4

Decreased wait times based on more efficient seating411

Managerial Implications

Recommendation:Based on the findings of the study, the recommendation for

revenue managers is to consider the implementation of payment policies to all reservable products where:

There is high demand for the product and

The product is sufficiently differentiated to warrant the reservation guarantee price.

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Limitations

Limitations:The findings assume that the payment policy was the only

substantial change at the restaurants for the given periodThe findings are limited in their generalizability to fine dining

restaurants in the southeast of the United States.

Future Studies:The data obtained from the study might support and encourage

future studies involving the application of payment policies to different types of reservations, restaurants and geographical locations

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References

1. Alexandrov, A., & Lariviere, M. A. (2012). Are reservations recommended? Manufacturing and

Service Operations Management, 14, 218-230. doi:10.1287/msom.1110.0360

2. Bertsimas, D. & Shioda, R. (2003). Restaurant Revenue Management. Operations Research. 51

472 - 486

3. Cross, R. (2011). Revenue management. Random House LLC.

4. Fischer, J. W. 2005. At Service Your Service, Hoboken, NJ: John Wiley & Sons.

5. Reddy, S. (2012). Knives Are Out for No-Show Diners. The Wall Street Journal. Retrieved from:

http://www.wsj.com/articles/SB10001424052702304537904577279440886182260

6. Tyler, J. (2014). No More Reservations: Exclusive Restaurants Require Tickets Instead. NPR.

Retrieved from: http://www.npr.org/sections/thesalt/2014/08/05/337834577/no-more-

reservations-exclusive-restaurants-require-tickets-instead

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