REGIONAL REPORT : Restaurants Stew Over Card Fees : They Honor American Express for Fear of Losing Customers
In better times, American Express probably could have quietly gone about its business, collecting fat commissions from the thousands of restaurants that accept the card for payment of meals ranging from the mundane to the spectacular.
But the nation’s in a recession, and the giant card company recently felt the heat of restaurateurs in a stew about high costs. A boycott of the card did not gain many participants, but the tempest underscored the fragility of an industry whose customers in slow times consider its services nonessential.
To survive, restaurants these days are watching their costs carefully, cutting prices on meals, changing menus and laying off employees. And restaurateurs are looking for ways to reduce charges paid to credit card companies for their services.
American Express, which is primarily a travel and entertainment card, demands that holders pay off the balance every month. It requires restaurateurs to pay 2.5% to 5% of the amount charged, depending on restaurant revenue and location. Bank card commissions range from 1.25% to 3.5%.
“That high percentage does sting. It’s the highest charge of any card,” said John Perkins, general manager of St. James Bar Restaurant, a pricey bistro in the University Towne Centre area of San Diego. The restaurant caters to professionals from nearby high-rise buildings as well as to executives at biotechnology companies clustered around UC San Diego.
Diners Club was the original restaurant credit card. Then came American Express. Now, with Visa and MasterCard proliferating--and companies such as Sears and AT&T; in the market--consumers have a wide range of choices.
But the changing industry landscape has also brought confusion as a growing number of eateries have dropped some cards, particularly the more expensive American Express card.
Some recession-strapped restaurant owners are in a bind. They would love to drop American Express, but few seem willing to risk alienating customers.
“I feel there are so many people who carry it, and with the business clientele that we have it is still important to honor that one card,” said Perkins, who noted that American Express cardholders represent 40% of his restaurant’s charged sales.
Restaurateurs and other merchants have long complained about the higher commission that American Express takes compared to bank credit cards, although labor and insurance costs are a much bigger headache.
On the other hand, American Express also provides extra services, including cooperative advertising and market analysis, many say.
Banks are able to subsidize their commissions because they also make money on the interest that cardholders pay on their balances, said David Robertson, president of the Nilson Report, a Santa Monica-based credit card newsletter.
The controversy boiled over in Boston in March, when a group of about 50 restaurants said they would drop the American Express card to save money. American Express last week announced that it will introduce lower rates June 1 for restaurants that file charges electronically. The Boston boycott evaporated even though the American Express commissions remain higher than those charged by banks.
Hassan Hassan, owner of Hassan’s Cafe, which serves moderately priced Lebanese food in Newport Beach, is thinking of dropping American Express because it is so expensive. Hassan said he switched banks about 10 years ago so that he could allow his customers to use charge cards. “We were letting our customers walk away,” he said.
Now, he said, many of his fellow restaurateurs have already posted signs near their cash registers saying they no longer accept the American Express card.
“I think most of the people who have American Express also have Visa,” he said.
Christopher Niklas, owner of the Bistro and Bistro Garden in Beverly Hills, as well as the Bistro Garden in Studio City, said the American Express card is “our most popular card,” with six out of 10 customers preferring it.
Niklas said he’s caught in a Catch-22. “To do without it would be a disservice, and we’re in the service industry. To live with it is a thorn in the side, but one we have to live with.”
Hans Prager, owner of the posh Ritz Restaurant in Newport Beach, remembers when bank credit cards were offered as an alternative to American Express in the early 1960s. “We decided to drop American Express, then two years later we picked it back up again,” said Prager, who was working at the time for Lawry’s restaurants of Los Angeles. “American Express is a necessary evil.”
He said that 90% of his sales at the Ritz are charged, half of that on American Express. He does not want to risk losing the business.
Then there are places like Aunt Kizzy’s Back Porch, a Marina del Rey restaurant specializing in Southern-style cooking that has never accepted credit cards and remains packed most nights.
“It hasn’t hurt us,” said Adolf Dulan, who owns the restaurant with his wife, Mary. The two never felt the need to take credit cards when they left the hamburger business for chicken-fried steak and black-eyed peas.
What They Charge
* AMERICAN EXPRESS charges restaurants a commission of 2.5% to 5%, depending on restaurant revenue and location. It recently reduced fees to as low as 2.75% for those filing charges electronically.
* Bank cards such as VISA and MASTERCARD charge commissions ranging from 1.25% to 3.5%.
* Sears DISCOVER card charges the lowest commissions, an average of 1.5%.
Paying With Plastic
Top charge cards, ranked by 1990 charges in billions of dollars, with total number of cards issued in millions.
Visa
charges :$150.0
number of cards: 128.9 MasterCard
charges: $92.4
number of cards: 89.5 American Express
charges: $88.3
number of cards: 25.9 Discover
charges: $19.4
number of cards:37.8 Diners/Carte Blanche
charges: $7.7
number of cards: 2.3
Source: The Nilson Report
Contributing to this story were Times staff writers Patrice Apodaca in the San Fernando Valley, Chris Kraul in San Diego and free-lance writer Anne Michaud in Orange County.
