Charge card fees spur restaurateur rebellion; American Express mulls new commission rates

Nation's Restaurant News, April 8, 1991 by Bill Carlino

Charge card fees spur restaurateur rebellion BOSTON -- With more than 100 restaurateurs here threatening to stop accepting the American Express card unless the commission rates are reduced, American Express revealed that it is re-evaluating its fee structure.

"We've been evaluating our pricing issue on a nationwide basis for several months now," Marcos Rada, American Express' president of public affairs, said while company officials were meeting here with the riles restaurateurs.

A decision on the rates will be reached by May 1, he said.

Restaurateurs here drew headlines when they said they could no longer afford to pay the assessments, explaining that the local economy had slid into a severe recession since the fees were set.

"Supply is up, and demand is down but American Express is apparently unaware that we're not doing the volumes of five years ago," said Steve DiFillippo, owner of Davio's, a three-unit upscale concept specializing in Northern Italian cuisine.

"You can't give a pricing advantage to one small group; you have to achieve parity for the entire restaurant industry," Rada explained. "You do not reset your discount rate in one afternoon."

DiFillippo's group said it wants American Express to roll back its commission fee to 2 percent, or approximately the same amount that is levied by such credit cards as MasterCard and Visa.

Every time a customer charges a meal on American Express, the restaurant pays a commission, or "discount rate," of 3 to 5 percent. The exact amount depends on the type of industry and its charge volume.

For instance, a restaurant grossing $500,000 in American Express charges would pay about $20,000 a year in American Express commissions calculated at an interest rate of 4 percent.

DiFillippo says the American Express fees for his trio of restaurants approaches $100,000 annually.

"If they don't change their commission rates, many owners won't have any recourse other than to raise menu prices," he said. In the midst of a recession, operators have been loath to pursue that route because of consumers' price-sensitivity.

"While we understand that restaurants are feeling pressure to cut costs, lowering our discount rates is not going to drive business into their restaurants," said Maureen Bailey, American Express' vice president of public affairs. "American Express believes that providing quality products and superior service will build customer loyalty, and that will lead to long-term success."

Rada asserted that American Express' commission rates are two points higher than charge cards because clients get additional services, including access to lists of cardholders that merchants may want to reach via direct-mail campaigns.

He noted that the restaurateurs rebelling against American Express' commission rates are a very small percentage of the total number of operators that accept the American Express card.

"It's not something that just happened overnight," he said of the protest.

The group of dissident restaurateurs also includes such also includes such local independents as Grill 23, Dad's Beantown Diner, Serendipity, Back Bay Bistro and L'Espalier.

Biba, a well-known fine-dining place in Boston's Back Bay section, has already stopped accepting American Express.

Jasper's another high-profile area independent, is planning to stop accepting the card on April 15.

"I've wanted to do this for eight years," said proprietor Jasper White, who lauds the protest group even though he has not joined it. "Restaurateurs realize that Amex isn't the government. We don't have to swallow what they're dishing out. They [Amex] kept harping on how good their marketing and public-relations departments were," he said. "That's fine, but I don't need a good marketing department. I need lower commission prices."

"The gut issue is rate, and up until now, American Express had been unwilling to meet us on that point," explained Chuck Ellis, director of marketing for Grill 23, a steak and seafood operation. "This is a risky step for a lot of us. About 60 percent of our business is charged through American Express."

Boston is not the only place where operators have objected to the fees levied by American Express. Nor is American Express the only card that has drawn heat because of its rates.

Bern's Steakhouse, a landmark dining facility in Tampa, Fla., discontinued use of the American Express card last June.

Houston's, a 21-unit dinner-house chain based in Atlanta, dropped both American Express and Diner's Club in March.

At New York's City Cafe, an 80-seat American bistro, owner Eric Miller said he would now take American Express card on an emergency basis only.

"I'm going to give away 4 percent of gross income in a market like New York just because I take American Express?" asked Miller rhetorically. "That's crazy."

To compensate, Miller is now opening house accounts in addition to accepting personal checks from preferred customers.

Rose Bianco, co-owner of Ciro's in Brookline, Mass., said she stopped using the American Express Card nearly two years ago because she was being charged an interest rate of 4.75 percent.