Restaurant reservation? I'll put you on hold: Are tickets the answer? by Bruce Palling

Is there any other simple transaction that has so many opportunities for deception as making a restaurant reservation? In the case of fashionable places, merely getting a reservation within a month of requesting it can be quite a feat too. But why should we be surprised? The restaurant business is one where everyone lies to each other – the receptionist might say they have a table waiting for you at 7.45 pm, while knowing full well you won’t be seated until 8.30 pm. This means you will have to loiter at the bar and spend another £50 or more on a round of drinks.

Meanwhile, when other clients turn up for a table for four, the restaurant is told that actually the other couple’s baby sitter was ill, but they would still like that spacious table just for themselves. In fact, one couple I knew were so notorious in the trade for pulling this trick, they passed into folklore - a “Scott Three” became restaurant code for anybody attempting to blag a larger table for two.

The losses suffered by restaurants through cancellations or no shows are, however, no laughing matter. One of London’s leading restaurateurs told me they recently had a table for six cancelled hours before on a Saturday night. The excuse? Their pet was very ill and had to be rushed to see the vet. Another customer actually tried to avoid paying compensation for not bothering to turn up by cancelling his credit card.

Restaurants can lose revenue of hundreds of thousands of pounds annually by such behaviour, so it is no surprise that quite a few smart people are trying to devise a solution to this problem. One method is to introduce a no reservations policy, which means that customers have to simply turn up on the night and hope there will be space for them. This works well for casual places in busy locations, like 10 Greek St in London’s Soho, or the fashionable burger place MEATliquor in London’s West End, but is hardly appropriate for a haute cuisine establishment that has to spend considerable amounts of money on highly perishable produce.

In Britain at least, there are only two nights which customers always have to either pay a deposit or the full amount upfront – New Year’s Eve and St Valentine’s Day. The practice is also acceptable for Pop Ups, which by definition only have a limited run.

This Summer, there has been a lot of talk about alternative restaurant booking systems, including Reserve, which has serious backing from the people involved with Uber, the taxi booking company. They have announced a launch some time in the Autumn. Last June, a new system launched in New York called Resy, which offers customers premium tables at sought after restaurants for a fee ranging between $10 to $25. There are also scalping sites that book table under fictional names and then resell them.

However, somebody has thought of an ingenious way to not only make advance reservations, but also allow restaurants to virtually eliminate no shows and gain cash flow – sell a ticket.

Instead of making a restaurant reservation by calling up a receptionist or filling in a computer form, customers instead purchase a ticket for a seat and pay up front, just the same as anybody attending a concert or booking a flight on an airline.

Devised by Nick Kokonas, who is one of the owners of Alinea, the Michelin Three Star restaurant in Chicago, that is in the top 10 of the San Pellegrino World’s 50 Best Restaurant List. He says they have taken nearly $70 million in revenue using this system at their restaurants plus a handful of others in California, Texas, Massachusetts and Arizona. This system is so new it still doesn’t have a brand name, but according to Kokonas, they are about to announce a range of advisors in the coming weeks and expect to raise several million dollars to roll it out in the coming months.

Kokonas explained why he devised the plan: “We had three full time people at Alinea answering telephones all day long. It is very frustrating for a customer spending an hour waiting on the phone line, then getting through and being told that the dates they want are sold out and the alternative dates are not available either. This meant we were saying no to 95% of our customers, 95% of the time, which is not a good business model.

Restaurants reservations are stuck in fifties technology. Just think how making an airline booking has changed in that time. You used to have to ring a travel agent who would then quote you what they said was a very good fare, they would issue a ticket and you would have to go to their office to pick it up. Compare that to now, where you can do everything online.”

But what about the fact that some customers might think it is not good practice to be asked upfront for payment, when nobody else does it?

“I was told by everyone in the industry that they could see how it worked but it wasn’t good hospitality. But since we introduced this system into our restaurant the hospitality has increased and the service has got better as we can spend more time on peoples requirements and needs rather than telling them we are full and can’t help them at all. Besides, restaurants are now a form of entertainment, and it is not considered weird to pay upfront for a ticket to a movie, theatre, concert, opera or football,” Kokonas added.

Just imagine how this might work for the Heston Blumenthal Dinner Pop Up in Melbourne next year. A six months run could easily sell out in the first week, with a mammoth amount of cash flow to ease the start up costs…

The biggest early adopter in the USA is Daniel Patterson, who is chef owner of Coi, a sophisticated Two Star Michelin restaurant in San Francisco, that just made it onto the San Pellegrino World’s 50 Best Restaurant list this year. What convinced him to launch this new booking system? “I realised that not only do we lose 15% of our reservations in the last day or two before service, but within the past week, 30% to 40% reservations change, so it is as if you have to book the entire restaurant twice. Because we are a special occasion restaurant, we don’t get a whole lot of demand at the last minute to make up for these losses. I also realised we were having to charge 15% extra to compensate for the people who don’t turn up, which is crazy. The ticketing system will allow us to both lower prices and improve quality,” Patterson added. He actually plans to reduce prices between 10% and 25% because of the savings on no shows as the system allows restaurateurs to offer different prices for either high demand times like Saturday evening or lower ones for say Monday or Tuesday nights. As Daniel says, “If you think about the other way, imagine if you went to a restaurant and 15% of the time you were told they wouldn’t honour your reservation - you would think it was outrageous.”

 Kokonas is a former derivatives trader, who created highly successful trading software but left that career after his wife told him he was “in danger of becoming an asshole”. His reason for starting a ticketing system is quite straightforward:  “There are very few businesses in the world that spend millions of dollars planning and creating it and then just hope someone is going to show up when they say they will.” He dismisses the rival system Resy (see below), which charges customers a fee for finding a hard to get table, which is then split between Resy and the restaurant.

“I don’t think it works to cede control of your reservations to another service provider – I don’t think paying $25 is worth it especially as you don’t collect all of that fee either. Also it is only solving the problem for a very few number of people in a very few number of restaurants.”

His plans for the future re not just to provide a ticketing service for restaurants: “Restaurants are kind of like our Trojan horse – I am thinking of dentists, hair salons, gymnasiums or anybody who has prime appointment times, which are obviously in very high demand. My dentist is running a 9% no show rate.

Uber are only offering a premium to get into a restaurant but that doesn’t solve the problem of getting people into your restaurant at 10 o clock on a Tuesday night. We have literally got hundreds of restaurants around the world that are interested in our software. We have sold nearly $70m worth of tickets on the system so far. We have restaurants in Europe and Asia plus one in Australia as well. I just want two leading restaurants in each major city to adopt it and then it will spread very quickly after that.

Obviously the top restaraunts in the world are natural adopters but I am more interested in the family run restaurant than might offer instead a deposit ticket scheme, where perhaps you pay $20 for a slow night, which translates into $30 off your bill that night.

I hate the idea of taking a slice of any business, so we just charge a flat monthly fee of $695 for the software. I am hiring a 11 year Google veteran as our CTO and then we will announce our key investors in the next week or so. Restaurants who have signed up are in San Francisco, Austin, Phoenix and Boston to come - four in NYC and two in the UK. I have talked to Heston’s group as well but they are not committed.

We are going to have 5 different tickets types including a zero cost conventional reservation option. Open table are using antiquated software. Any client can access our system from any iPad in the world, which gives you an incredible amount of flexibility. The guys I’ve got investing in it think its a billon dollar business.”

One of the most popular places to open in London last year was the Clove Club, in East London’s trendy Shoreditch area. Chef Owner Isaac McHale says he is positive about the concept and will seriously consider implementing it. “I would definitely consider it as it has been crafted to provide benefits to both parties, but there would be lots of resistance from the dining public and particularly food critics. (Marina O’Loughlin, the no-nonsene Glaswegain restaurant critic of The Guardian has already condemned the Resy practice described below, yet admits if it meant she could get a seat at a hard to get place in New York, she would do it because of time restraints. Her article is now dated as she completely ignores the ticket concept.) We probably suffer 5% no shows and every time we implement our policy of financial penalties for this, it leads to a lot of aggro and people swearing they will never return. They don’t care that orders have been placed three days in advance and you can’t send those things back.”

The level of competition in this space is going to increase considerably in the coming year. Ben Leventhal, the co-founder of Resy, believes his system of merely charging for a reservation in a hard to get restaurant is an easier concept to grasp than ticketing. It has already been adopted by leading New York restaurants like Balthazar and Gotham Bar and Grill. “We have the technology to enable restaurants to take advance payment but I think ticketing only works for a very specific type of restaurant, where going there is an event, where you actually plan a trip around going to it, such as Noma. Ticketing makes a ton of sense for those sort of restaurants and we can offer that functionality too. For the moment though, people are only paying for the reservation, not the meal and the fee is split between Resy and the restaurant.

We see Resy ultimately being in hundreds of places in cities like London, New York or Hong Kong. We have been live since June 12 and we have seen about 10,000 downloads and have booked more than 500 tables so far. The future I am most excited about is that 20% of our users have booked twice.”

However, there are going to be a lot of competitors emerging in the coming months as Priceline, the large online travel company has just purchased OpenTable, the largest online restaurant reservation company in North America, for $2.6 Billion, which shows how big the potential is. Leventhal admits that “We expect this is going to a dog fight with all kinds of challenges and OpenTable is definitely one of them. Uber is also an absolute monster, so if those people are involved in a reservations system, its' not going to be plain sailing.”

This is a longer version of my story that appeared in Newsweek International

Further Reading:

http://website.alinearestaurant.com/site/2014/06/tickets-for-restaurants/