Monday, February 16, 2009

OpenTable IPO - Make My Reservation

In my e-mailbox from Restaurant Hospitality, an editorial asking if the upcoming IPO of OpenTable , a popular on-line reservation system, is worth the stock sales price given the economics of the current industry - and the sales growth necessary to justify it. We don't use OpenTable at Sevy's Grill, nor do I personally know any of it's current owners - it was founded by Danny Meyer, who is the owner of my must-go-to-when-in-NYC-restaurant. But I don't know him personally.

So it triggered a thought, how could a company like OpenTable, which has developed the trust of most of the nation's top restaurants, leverage this relationship to translate into higher revenue? First of all, the primary goal would have to be to increase their client numbers, not just how much they make from each existing client since the bulk of their revenue is from the monthly service they provide. To do this, they could easily increase the services they offer, at a relatively modest fee, that parallels what they offer to clients now, providing more incentive to become an OpenTable member. So I decided to do an informal poll of several friends who do use OpenTable as their reservations assistant. I promised anonymity to those who responded.

First, a background. OpenTable is an on-line reservation system, they provide merchants with the software for booking reservations charging a flat monthly leasing fee plus a commission for each reservation booked. Both are modest, a contract is not necessarily required, for those restaurants not open during the day it provides a secure system for guests to leave their instructions. While not providing telephone reservation assistance, it is widely used by concierges throughout the city and costs a business as little as $10 per day.

One restaurateur who has been a client of OpenTable for about 5 years pointed out that it also provides a venue to track guest preferences, information is backed up to a secure server, reservations can be accessed remotely and through OpenTable's marketing efforts, people are directed to make reservations through multiple sites. During my research, I found that OpenTable also incentivize regular "bookers" to specific restaurants through a points "reward" system. Brilliant.

So, to my question, as it pertains to sales growth at OpenTable to justify the IPO asking price of their stock. To current users of the OpenTable reservations system I asked: "What would it take for you to allow OpenTable to sell your business' gift certificates?" Or, to elaborate, if they are capturing your guests on-line for reservations, could they also capture their gifting needs?

Assuming the logistics could be worked out (utilizing an E-Bay/Paypal model of multiple "sellers" and payments channeled through a reliable middleman), I was curious if owners would take the next step of letting a company help market and sell their products. Back before the bust, several local restaurants (including Sevy's) were approached by, a national on-line seller of meals to send to others as "gifts". Eventually, went out of business because sales and income were insufficient to justify their highly inflated stock price during that speculative period.

But OpenTable is a different business model. They have grown by offering a labor saving, secure and reliable service for everyday operations, they have built a trust that can be expanded with the right choices. Let's say when someone makes a reservation, a screen pops up reminding them that a nice meal is a wonderful way to say "Thank You", or "Happy Birthday", or "Congratulations" to business associates, teachers, pastors and friends, you can buy it right now and get it off of your list of things to do. Voila? Or not?

Both (yes 2) of the chefs that responded sounded somewhat receptive to the idea. For a reasonable fee, or percentage of sales - what the volume could be is any one's guess, but it does increase the service to the client. What I didn't point out to the chefs was that OpenTable could pair up with someone like Citicorp, or Chase, and begin issuing their own "branded" gift cards, or pre-paid credit cards with the OpenTable logo. I hope they don't make that choice, because then in essence they would become competitors to the clients they serve.

This could be win-win, because the restaurant gets the sale and the traffic to his restaurant, OpenTable would, of course collect a commission for the sale, increasing per-client revenues (Wall Street Loves That). The restaurant would collect the money for the certificate and funds for shipping and handling (paid by the purchaser), OpenTable would collect the commission plus (reasonable and customary) credit card fees for running the transaction.

There, done, sign on the dotted line. I'll take my commission in trade-out.

UPDATE: Heard from a third chef, who also was intrigued as long as there were maximum limits on the commission and the amount was a fair percentage.


Anonymous said...

So, why hasn't Sevy's joined OpenTable?

Amy Severson said...

I began this post with a completely different view of Open Table than the one I finished with. I think they do offer a valuable service to restaurants who are looking to rein in labor costs while maintaining high levels of service.

Sevy's has manager/owners on premise from 8:30 am until the doors are locked, 7 days per week, whereas many of the restaurants listed on OpenTable are only open for dinner - they can use the daytime assitance. We also allow online reservations through our website, While heavily used by concierges, it is not the only way reservations are booked, the hotels in our neighborhood are all on great terms already with our restaurant. Our distance from downtown and convention area tends to send those diners closer to the hotels where they are staying.

I could see a time when Sevy's would be OpenTable members, but like everyone in our industry right now, we're trying to rein in our costs - until things begin to turn around.

Anonymous said...

How about instead of just attempting to lower your add to your revenue by joining OpenTable for the nominal fee, and tapping into their diner network of approximately 10,000,000?? It sounds like there is profit to be made here.