November 15, 2012
Here's something you may not know about Open Table, the predominant online restaurant reservations system: When you book a table through the Open Table website, the restaurant is charged $1 per seated guest — so if you show up as a foursome, that's $4 off the restaurant's bottom line.
When you go to the restaurant's website and it directs you to the Open Table system to place the reservation, the restaurant gets charged 25 cents per seated guest — so a four-top adds up to $1.
And if you call the restaurant and make the reservation human voice-to-human voice, that costs the restaurant nothing.
So — big surprise — restaurants would love it if you'd call them for reservations, even as an ever-increasing number of them pay Open Table for each online reservation plus equipment installation and a monthly "subscription" fee to help them manage their reservations and fill seats. After all, restaurants operate on tight margins, so those expenses will be reflected in the prices.
"Theoretically you pass along everything," Yusho chef-owner Matthias Merges said.
Yet the convenience of Open Table has made this trade-off attractive to an ever-increasing number of diners and restaurants. Ann Shepherd, senior vice president of marketing for the San Francisco-based company, said about 540 Chicago restaurants and more than 800 in the metropolitan area are Open Table clients.
Throughout North America, Open Table reports, more than 26,000 restaurants subscribe to the service, compared with about 17,000 by the end of last year, and it seats about 10million guests each month. Shepherd said 2011 figures show that about 44 percent of North American restaurants that take reservations are signed onto Open Table, and about 12percent of diners seated with reservations at any North American restaurants made those arrangements through Open Table, which had total revenues of $139.5 million in 2011 compared with $99 million in 2010.
"They've done a great job capturing and pretty much owning the market," said Kimberly Phillips, director of operations at One Off Hospitality, which uses Open Table at Blackbird and the Publican.
What the company offers sounds basic yet wasn't commonly available before Chuck Templeton, then a product marketing engineer for a San Francisco technology company, launched it in 1998 as a way to simplify the reservations process. Back then most restaurants took requests over the phone, recorded the reservations in a booklet and jotted down any notes.
Open Table created the Electronic Reservation Book through which a restaurant could manage its bookings, assign tables and maintain a database of notes about that night's reservation (i.e., the guests are celebrating an anniversary) as well as, for future reference, the diners themselves (i.e., Mrs. McGillicutty is lactose intolerant and likes to be seated near the restrooms). It also built up a network of restaurants that could be searched on the Open Table site for availability at a certain time, so if you're visiting Chicago and want to know where you might eat on Saturday at 7:30 p.m., a quick visit to opentable.com lays out many options, with diner reviews attached.
Scott Barton, vice president and managing partner for fine dining at the Lettuce Entertain You restaurant chain, said Tru signed on to Open Table early on, in 1999, when its reservations books were separated by month, so if more than one caller was inquiring about, say, December, someone would have to wait or get a call back.
He praised the ease of coordinating the bookings and added that "the information you can store about guest likes and dislikes and previous experiences is very helpful and improves the guest experience."
Now Lettuce Entertain You uses Open Table at most of its reservations-accepting restaurants. At Tru a computer runs the Open Table software in a closet off the entrance, and an Open Table touch-screen computer and a few more Open Table-equipped PCs are in upstairs offices. Many other restaurants place Open Table touch-screens at the host stand so the dining room can be managed from there.
The basic subscription price for one Open Table touch-screen computer is $199 per month, Shepherd said. As with cable companies, there are also an initial installation and equipment fee starting at $200, additional charges for other computers running the software or additional services such as Open Table Anywhere (which allows the restaurateur access to the Electronic Reservations Book from a remote site) plus the costs of the reservations themselves.
"Open Table, while it is an amazing, incredible product, is a very expensive product to utilize," said Phillips, who reported that the monthly Open Table bill for the Publican alone is $3,400-$3,800. "You know what you're paying for, and you know what to expect, but every time I open (the bill), I'm like"— she made a gasping noise.
Sarah Stegner, co-chef/co-owner of Prairie Grass Cafe in Northbrook agreed that the Open Table service is worthwhile but pricey.
"Our average check isn't very high, so a dollar (per diner) is a big chunk," she said. "The whole system's really well thought out. It's just the expense of it is really high."
"It's insanely high," said Homaro Cantu, chef-owner of Moto and iNG, both of which use Open Table, though Cantu said he's trying to develop an alternate system that can operate on iPads instead of the PCs he has solely for Open Table. (Open Table doesn't run on Macs, though there's now an iPad application.) "Really they're the only kid on the block, and they need some competition."
Those expenses are the reason Merges opted not to use Open Table for Yusho.
"It's definitely expensive, which for a small restaurant is very difficult to cope with," Merges said. "I was looking for alternatives that would be less impactful on the restaurant economically."
So Yusho went with a startup system called RestaurantConnect that doesn't have a per-reservation charge and operates in the cloud, thus eliminating the need to lease hardware. Merges said he's been happy with the service, though he acknowledged that staying away from Open Table might hurt the restaurant's visibility.
Phillips said her company has explored Open Table alternatives as well and is confident that Blackbird and the Publican attract guests on their own merits — but she's reluctant to abandon that network and its dedicated followers, who are rewarded for using the service with a program that gives them 100 points per regular reservation, with 2,000 points meriting a $20 dining check to be used at any Open Table restaurant. (A restaurant also can pay Open Table to award 1,000 points for a reservation, giving the diner more incentive to eat there.)
Ian Goldberg, vice president of the Boka Restaurant Group (Boka, Girl & the Goat, GT Fish & Oyster, Balena and Perennial Virant), expressed similar concerns.
"I don't know how many restaurants would want to gamble not to use the service because I think a lot of people are going online and checking it out, and if they don't see your restaurant, they might not go," Goldberg said, estimating that Open Table accounts for 50 to 60 percent of his restaurants' reservations. "It definitely costs the business money, but we think it's money well spent."
Shepherd said the average bill per diner at an Open Table restaurant is $42.50, so the businesses are seeing a return on their investment. For a typical restaurant, she added, if the service results in a 5 percent increase in business, it pays for itself.
"Every incremental seat that we can help a restaurant fill helps increase their profitability," Shepherd said, also noting that diners can make or change Open Table reservations at any time of the day, adding convenience and enabling restaurants to invest less labor in staffing the phones.
More and more of those seats are being filled online as people grow increasingly reliant on their computers, tablets and smartphones. Stegner's restaurant has an older demographic than many in the city, so she estimates that 20-25 percent of Prairie Grass's reservations are being made via Open Table, but she's still paying more for the service each year because that percentage (and thus the number of reservations charges) keeps rising.
Phillips said about 60 percent of Blackbird and Publican customers are now booking online.
"Less and less people are phoning the restaurant and making a reservation," she said. "It's all about convenience. I think that 60 percent could grow into 70 percent or down the road 80 percent."
As that online business increases, Phillips and other restaurateurs would like their reservations-system options to do the same.
"I think competition is always good, and I'm interested to see where these companies can go to challenge Open Table and whether loyal diners will break out and follow these other companies," Phillips said.
Open Table founder Templeton, who left the company in 2004 and now is managing director of the socially conscious startup incubator Impact Engine in Chicago, acknowledged that Open Table will have to keep evolving to stave off new players in the crowded restaurant field.
"At some point their current product is going to run out of runway," Templeton said.
In the meantime, for old times' — and bottom lines' — sake, restaurants would love for you to pick up the phone every once in a while.
"I love the personal touch of answering the phone and talking to someone and giving that hospitality that you can never do over the Internet," Merges said. "I think it's important to have that really great human interaction. But one cannot deny the Internet."