Observations Observations

September 2, 1996

Stopping No-Shows

A dramatic rise in restaurant no-shows in recent years has spurred many establishments to change their reservations policies. Reservations allow restaurants to regulate demand and to give their clientele predictability and an elegant ambiance. But no-shows thwart a restaurant's efforts to keep its tables full and its turnover rapid, both essential in this competitive industry, observes Herman Cain, former president of the National Restaurant Association.

Traditional upscale restaurants have only slightly altered their old reservations policies. Boston's Biba and Rialto, for example, now insist on confirmation by the reservation's date. Others take credit card numbers with the implicit threat of charging a no-show.

Casual, upscale restaurants -- one of the fastest-growing parts of the industry -- have changed their reservations strategies in a more dramatic fashion. Elephant Walk in Somerville accepts no reservations. Sawasdee in Brookline promises customers the first table that's available after they arrive. At both establishments, the response has been long lines of customers waiting to be seated.

Why don't restaurants that have persistent excess demand -- those with queues of customers waiting patiently for a table -- raise their prices and book reservations? It may be that a no-reservation policy promotes a clamor of walk-in customers that attracts more business than would seating predictability or a more elegant ambiance. Customers may prefer the heady atmosphere of a popular, crowded restaurant to the quiet or empty equivalent down the street.

One diner's demand thus may be related to another's presence. This desire for company, notes University of Chicago economist Gary Becker, may explain why restaurant demand often is fickle. It is much easier to go from being "in" to being "out" than to build a crowd in the first place.

-- Rebecca Hellerstein


The Value of Loyalty

Camden, Maine, known mostly as a mecca for tourists, now hosts the regional offices of a leader in the "affinity" credit card business. In this midcoast town of only five thousand, MBNA Corporation, based in Wilmington, Delaware boasts a workforce of fifteen hundred.

Building its business on feelings of loyalty, MBNA has become one of the largest credit card marketers in the nation. Last year, it signed on 7.5 million new customers, and as of this summer had added five million more of them.

Marketers of affinity cards establish partnerships with college alumni associations, professional organizations, sports teams, and makers of consumer products. They tap into feelings of loyalty to these sponsors and offer cards carrying the name of the card holder's alma mater, the Red Sox logo, a professional symbol, or even a picture of the family dog.

The sponsors benefit from increased recognition and from a small cut of the card issuer's revenues. For example, Smith College in Northampton, Massachusetts, pulled in $35,000 last year from its affinity card.

Industry experts agree that affinity cardholders tend to have better-than-average payment habits. They also tend to carry higher balances, which results in higher interest income. Such factors are critical to a marketer's success, says Joanna Stavins, economist at the Federal Reserve Bank of Boston.

For the cardholder, the affinity card creates a warm and fuzzy personal touch. In this depersonalized technological age, when a facility perched in far-off coastal Maine can function as your bank, this is something many of us seem to value.

-- Rebecca Carter


Many Faces of Poverty

Recent federal welfare reform gives the states more flexibility to define benefits and help welfare recipients find jobs. Allowing the states to hone different strategies to address poverty could be valuable, as the demographic composition of the poor varies dramatically across regions of the country.

According to economist Robert Triest of the Federal Reserve Bank of Boston, households headed by single mothers account for nearly two-thirds of the poor in New England. That's the largest proportion in the nation, explained in large part by the fact that New England has relatively few poor two-earner families.

By contrast, in parts of the South and in states with big streams of new immigration, many two-parent families with little education or poor language skills have a difficult time working their way out of poverty. Such differences in earnings potential, Triest says, help to explain the regional variation.

The growth of never-married mothers living in poverty presents a new challenge to an old problem. Current state programs in New England, however, often provide assistance to poor families without direct consideration of their differing needs. Some states, for example, seem to assume that there is a parent who can easily go out and work. Thus they offer child care programs just as readily to two-parent households as to single mothers.

Whether more targeted strategies can lift single mothers out of poverty, or help young women from becoming pregnant in the first place and falling into dependency, is an open question. But clearly it is a question that the New England states have a great motivation to answer.

-- Christine Gagliardi