Yesterday, Priceline announced its purchase of Open Table, an online and mobile reservation system that is already serving “more than 15 million diners each month at 31,000 restaurants.” It’s interesting to note that Priceline and analysts think it’s a good fit with Priceline’s travel booking business.
What’s more interesting is that even though Open Table is the industry leader in the US it may be the beginning of the end of its booking model. The new game in town is restaurant tickets.
What are restaurant tickets? Diners purchase tickets in advance paying a price that can change based on the time and day of their reservation. The ticket price covers the full cost of a fixed menu meal, tax and tip included, and drinks are extra.
Where did it start? Next was a new restaurant opened by the owners of Alinea, a famous restaurant in Chicago for which it is famously difficult to get reservations. Its co-owner Nick Kokonas decided that the traditional reservation model, i.e. call or go online, ask for a particular time and party size, and check if there is any availability, wasn’t working for Alinea and he wanted to try something different for Next. He decided to re-examine the entire reservation process, from initial contact to the payment of the bill, and completely changed the way Next (and later Alinea) does business. He detailed his process with a fascinating blog post. It’s clear when reading it that on one hand Mr. Kokonas isn’t a seasoned technical product manager but he clearly and deeply understands the mechanics of his business, the needs of the users (the diners and potential diners) and the requirements for the new reservation product. He’s also brave enough to throw all existing models aside, realizing that they don’t work for Alinea.
Alinea is different than some restaurants in that it is very popular and demand for eating there always exceeds the capacity. Mr Kokonas defined the following pain points:
- A high volume of calls meant that callers often could not get through.
- 3 full time employees answering phones, mostly to say ‘no’ to potential customers since 70% of people request the same times: Friday and Saturday prime times. This was costly payroll, costly phone lines, and, most importantly, frustrating to the callers.
- No shows running at around 8% or more, depending on the time of year .This cost the restaurant several hundred thousand dollars per year in revenue.
- Voicemail boxes with 100+ messages meant that it was a full-time job just to retrieve and call back customers… often to say that nothing was available or to play phone tag for days.
- Customers felt like they were being lied to. How could you be booked 2 months out on a Thursday? There was no transparency to the system.
So the existing, familiar reservation system was costing Alinea in payroll, no-shows that could have been filled, and customer ill-will. Clearly it was time for different solution.
The ticket model was built on the existing theater and sports event model, where different nights and dining slots went for different prices and once a ticket was purchased it meant the meal (i.e. the event) was fully paid for. Purchasing was done online and was usually sold out within minutes after a batch of tickets had been made available.
So if the result is still sold out tables for weeks in advance, why was Mr. Kokonas happy with the new ticket system vs the traditional reservation system?
1. “It creates transparency of process for customers and builds trust and loyalty.”
It doesn’t hold back the prime-time dining slots, it just charges higher for them. Customers know this and can plan accordingly. It also shows quite clearly when slots (tickets) are available for purchase. I’m not sure that Alinea and Next charge different prices for different locations in the restaurant (after all, aren’t some locations better than others?) but customers can see what tables are available during certain dates and times, exactly like a show or sport event. Even for tables that are held back on certain dates, this system can offer “last minute” deals on social media and sell them as well.
The other benefits stated by Mr Kokonas are:
2. “It acknowledges that there are better / worse table times, and shifts demands accordingly.”
3. “It moves pricing in TWO directions, which is key.”
4. “It supports the notion that table management should be visually simple for the restaurant managers and the customer alike. “
5. “It creates a direct connection between restaurant and patron.”
These may seem like they should be self-evident but they are not possible in the rigid product that Open Table offers, built on the traditional, all-times-are-equal reservation model. It also may not make sense for restaurants that aren’t as popular as Alinea or Next but at the very least they should be looked at.
Another reservation method I encountered in the last year was one devised by an “underground restaurant” here in San Francisco by the name of Lazy Bear. Lazy Bear is open sporadically and when it is, it offers only a single, fixed price menu to all of its 40 diners at a single time slot. It’s a take it or leave it kind of thing. For the four times I have been there it has been fully booked each time. And its chef/owner, David Barzily, doesn’t use a traditional reservation model either. His model involves notifying the customers who have signed up to be on his mailing list that a few dates are coming up and then giving them a day or two to “submit” their request. In that request diners state their party’s size, prefered date and dates they can make it. If they’re “chosen” (and this part of the process is admittedly not as open and transparent as Mr. Kokonas’ over at Next and Alinea) customers will pre-pay for one diner and pay for the rest of their party after the meal. Like I said, I have never seen an empty spot at the Lazy Bear and once allotted, it no longer takes up the staff’s time to deal with reservation issues.
Finally, I hope scalping doesn’t become a problem. In that case, Alinea and Next clearly have their customers’ permission to charge a higher price for certain times and dates. After all, why should the scalpers profit and not the owners?