Open Table and the cost of making reservations

How much does booking online cost restaurants? You'd be surprised.

There are as many ways to procure a table at a restaurant as there are to cook an egg. Sometimes you simply walk in off the street and ask to be seated, and you're instantly given a spot. At other times, that approach means you will wait for an hour or more, jammed into a crowded bar or in a queue that stretches into the street. A lot of restaurants let diners make advance reservations, and some go so far as to sell seats for each evening's prix fixe meal as individual tickets, as at a concert. Each approach has its pros and cons, both to the diner and to the restaurant—some of which benefit one group at the other's expense.

The simplest reservations system, of course, is not to have one. Some small restaurants, and larger ones with high-traffic locations or outsize popularity, have high enough demand to consistently reach their desired capacity just by waiting for diners to show up. This policy can increase the restaurant's profitability by cutting the expense of managing reservations and eliminating the inefficiencies of having tables sit empty between parties, or, worse, for an entire turn due to a no-show.

The new Tilia in Linden Hills seats diners on such a first-come, first-served basis, though chef and co-owner Steven Brown says the policy has less to do with logistics than emotions. "The main factor is that we're squarely a neighborhood place," he explains. "We want people to feel like they can come in any time they want." There's a democracy to a system, Brown says, that turns no one away. Anyone can get a table, as long as they're willing to wait. (The restaurant stays open till 1 a.m. and so far has been able to accommodate all those who wait out the dinner rush.) Taking reservations, Brown says, would send a different message. "It adds a certain formality," he says. "Also, with only 14 tables in our restaurant, we could get booked out in a matter of moments."

Lars Leetaru www.leetaru.com

Location Info

Map

Tilia

2726 W. 43rd St.
Minneapolis, MN 55410

Category: Restaurant > American

Region: Southwest Minneapolis

Brown hopes that diners can turn the time spent waiting for a table at Tilia into an opportunity to socialize or explore the neighborhood. (Though maybe not at Sebastian Joe's, where you'll be tempted to spoil your dinner with an ice cream cone.) "We want to be that community hub in our neighborhood," he says.

But diners on tighter schedules—say, those hosting clients, headed to a show, or paying for a babysitter—want to know that they won't have to wait and prefer to have a table confirmed. Most restaurant reservations, about 90 percent, are still made on the phone, though internet bookings are fast increasing. Michael Kutscheid, the maitre d' and co-owner of Sanctuary restaurant in downtown Minneapolis, has a long memory of the days before online reservations. "In '98 when Oceanaire opened, I had a person dedicated to answering the phone and taking reservations from 10 o'clock on," he recalls. "When I opened D'Amico Cucina, we had five incoming phone lines. These days, the amount of traffic on the phone has really calmed down."

That's largely due to OpenTable.com, which launched in San Francisco in 1998 and enjoys something of a monopoly in the online reservation business. The system didn't gain much traction in the Twin Cities until around the time the company went public a couple of years ago, but today nearly 250 Minneapolis and St. Paul restaurants use the service.

Online reservations can be extremely convenient. They can be made at any time, without having to wait on hold or receive a confirmation. Simply go to OpenTable.com and view the dozens of dining options displayed on a map, sortable by location, price range, and cuisine type. With just a few clicks, and at no cost, diners can book a table instantly.

But there's no such thing as a free lunch—or a free dinner reservation. The participating restaurant typically pays a one-time installation fee of several hundred dollars (to cover setup and training for the Open Table computer terminal and software), plus, at minimum, a basic monthly fee of $199. The system's biggest source of contention is that it also charges the restaurant $1 for each person in the dining party on reservations booked through Open Table's website. If diners book by clicking through the restaurant's website, that fee is reduced to $.25 per person. Calling the restaurant directly incurs no Open Table expense.

Some frustrated restaurant owners argue that the per-diner fee is excessive, a complaint similar to the one that concertgoers levy against Ticketmaster. Restaurant owners understand the system has its benefits, but they can't always quantify how those compare to its costs. Part of the challenge stems from their inability to differentiate between a "new" diner who was brought to the restaurant by Open Table and one whose mind was already made up and just happened to book through Open Table's page. If owners could count only diners who are truly "new," the cost of bringing in customers through Open Table would no doubt ratchet up even higher.

The most expensive option for restaurants is Open Table's rewards program, which gives diners an incentive to book at off-peak times. The diner who makes the reservation receives 1,000 dining points—good toward $10 worth of food at an Open Table restaurant. But while the program does help restaurants fill empty seats during less-busy hours, Open Table also charges them a steep $7.50 per party member. Unless the diner rings up an especially large bill or becomes a repeat customer, a restaurant can lose money on the deal. Even diners who have benefited from the system would admit that it seems a little unjust for the restaurant to pay more for a computer to book your seat than to the person who cooked your meal.

The owners of Meritage in downtown St. Paul have used Open Table since the restaurant opened in late 2007, but they don't necessarily like it. "Open Table sucks," says chef Russell Klein, who owns Meritage with his wife, Desta. "It's expensive. It's cumbersome to use. It's one more thing like credit card processing that has hands in pockets of restaurant owners," he says. "They're a multibillion-dollar corporation, and they don't give a damn about me and my business." (Klein's David vs. Goliath analogy is bolstered by the fact that the average restaurant typically posts profits of roughly 5 percent of revenues, compared to Open Table's net income of $14.1 million last year on $99 million in revenue, a profit of about 14 percent.) The Kleins estimate that their annual Open Table bill is roughly $15,000 to $18,000. "That's half a decent salary," Russell notes. "Everyone pays a little more for Open Table whether they make reservations that way or not."

Desta, who manages the front of the house, says she hasn't found that Open Table has saved her staff much time. Because they've been unable to tailor the system as closely to Meritage's specific needs as they'd like, her staff ends up micromanaging the software. "It's a tool we have to take care of," she says. She also prefers a hands-on approach to customer relationships and doesn't like ceding that control to an automated system. "We like to personalize our reservations," Desta says, in being able to find out more information about what type of an event the diner is expecting, their seating preferences, and time constraints—as well as expressing enthusiasm for the diner's impending visit. "Nuance is what you lose if you give over that responsibility," she says.

But the Kleins' main resentment is that their restaurant stays fairly busy with regular customers and doesn't rely on Open Table to get butts in seats. "I don't believe I get a lot of customers through Open Table, but I know other small independent chef operators who do believe they get customers and do try to drive business that way," Russell says. While Open Table can provide the restaurant advertising and promotional opportunities, Desta says she would prefer to handle those activities internally. "I don't want to pay Open Table to do my marketing," she says. "I want to be in control of how my brand is distributed, but that's how they justify their cost."

Other restaurants whose businesses operate under different circumstances have found those same services worthwhile. Eateries in tucked-away locations without much walk-by traffic, for example, can draw new customers who discovered them by a simple location-based search on Open Table.

For example, due to its proximity to the Guthrie Theater, Sanctuary tends to fill its seats quickly on show nights. But the restaurant has seen a benefit from using Open Table to recruit off-hour diners as well as hotel guests who might be unfamiliar with Sanctuary but are attracted by its recommendations from other Open Table diners. "If you're not hooked up to that segment of the internet," Michael Kutscheid explains, "you miss that avenue and that base."

A discounted meal typically won't hurt the restaurant as much as letting the table sit empty—there's a zero percent chance that a nonexistent guest will, say, order a round of rare single malt scotch. As with airlines—which are embroiled in their own struggles with internet middlemen—a significant chunk of a restaurant's costs, such as rent, are fixed. And Open Table provides additional customer-relations benefits, such as tracking customers and their dining habits, as well as reducing no-shows (diners receive an email confirmation and are blacklisted if they miss a reservation without canceling four times within a year).

Even though he considers himself an Open Table fan, Kutscheid says the system isn't perfect. Because large parties present an extra challenge to restaurant staff, Sanctuary and many other eateries don't allow them to book online. Selecting a party of seven or more on Santucary's Open Table page returns a boilerplate message giving the impression that tables are unavailable, when in fact they may not be. Kutscheid says he'd love the site to suggest that diners making such requests be told to call the restaurants, but he's doubtful that Open Table would make such a change. "They will never do that command because it takes money out of their pocket when they call me and the reservation will be free."

Since Open Table benefits from booking diners at any restaurant, its incentive is different from that of its restaurant customers, who only benefit if diners book at their eatery. As more and more restaurants sign up for Open Table, some could end up losing customers who were planning to patronize their business but changed their minds after searching Open Table and being lured by another restaurant. Still, some restaurateurs who resent Open Table's excessive fees won't forgo the service for fear of losing access to customers who insist on booking online, a group that tends to be frequent diners.

More competition in online reservations would provide more options for restaurant owners and diners. The dining website Urban Spoon recently launched a competing service, called RezBook, an iPad application touted as being simpler and less expensive (the cost of an iPad, plus a $99 monthly fee)—though the company will start charging per-cover fees, just like Open Table, in 2012. After looking into using RezBook and other systems, the Kleins instead decided to pursue development of their own proprietary online booking software.

A brand-new Twin Cities startup, ReservePerks.com, hopes to provide an alternative to Open Table and daily deal sites for restaurants looking to fill empty seats and diners looking for discounts. In a system similar to the New York-based website VillageVines.com, participating restaurants input reservation times they'd like to fill and diners pay $10 to make a reservation (a fee that's transferable to a new reservation if they end up canceling) in exchange for receiving 30 percent off their bill.

Reserve Perks owner Dave Ostlund, who runs the Twin Cities Food Finds dining guide and the daily coupon site DealStork.com, thought the concept offered a more equitable, and mutually beneficial, opportunity for restaurants and diners. The restaurant can control what they're offering—they choose the number and time of reservations—while paying nothing to become a Reserve Perks member. The restaurant collects 70 cents on every dollar, as opposed to a typical deal site's 25-cent-per-dollar cut, and the diner has an incentive to increase spending. While the diner has to spend at least $30 to start accruing savings, the amount can be substantial on larger bills.

Surely entrepreneurs will come up with new ways to help restaurants fill their tables, and these strategies will work better for some restaurants than others. It's unlikely that any one system will ever be the silver bullet—one that every restaurant has, well, no reservations about.

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