Restaurant Reservations Are Broken. Here's a Simple Fix
Eric Blinderman, owner of New York City restaurants Almanac and Mas Farmhouse, has nothing nice to say about people who blow off reservations without cancelling. He estimates no-shows make up 10 percent, sometimes even 20 percent of his booking each night. "When people don't show up, it's catastrophic and horrible."
Most restaurants operate on thin margins. No-shows can be the difference between red ink or black for the evening. Reservations as they exist today create what's called an information-asymmetry problem. Restaurants don't know how likely a diner is to honor their booking. Maybe the reservation-holder is a die-hard foodie who will brave a blizzard for squid ink agnolotti, or maybe she's a flaky trendster who booked five other tables to choose from that very same night.
That uncertainty is what leads restaurateurs to overbook their dining rooms, forcing some customers to wait at the bar for a half hour while, at the same time, dropping checks on diners who are taking their last bites of dessert.
Calling a restaurant, or booking on the big daddy of reservation websites, OpenTable, just doesn't work. In a typical market, a scarce product or service with excess demand is auctioned off to the highest bidder. But because restaurants don't normally do this, there are chronic shortages. Trendy yuppies and hipsters can't find seats at hip restaurants during peak hours. They are stuck on the outside looking in at people who planned months in advance or have connections with staff or ownership.
Answers Via Apps? Nope
Forever striving to improve the lives of the elite, Silicon Valley has produced several apps, with names like Resy and Shout, to resolve this. Diners who book via their smartphones can pay a premium for prime tables at high-demand restaurants. But they're going the wrong way: the benefits they offer are one-sided. A cheaper, easier solution is possible: it's time to start rating restaurant patrons, Uber style.
Before I explain the ratings system, let's look at what OpenTable, which has all but cornered the online reservations business, has gotten wrong: According to OpenTable's Tiffany Fox, "you can either punish or reward" diners who use the service. But right now OpenTable only doles out punishments: skip out on four reservations in a year without canceling (which you are free to do up to the moment of your reservation), and your OpenTable account will be closed. The shutout is automatic since the system automatically logs no-shows.
As with Uber customers, reservation software could include a diner rating based on their on their reservation-honoring history, their behavior, and maybe even their tipping habits. Ratings could impart more granular information than simply shutting people out. For instance, from a restaurant's perspective a last minute cancellation is almost as bad as a no-show. A rating system would allow restaurants to track all such undesirable behaviors in a user's profile.
Indeed, the four-strikes-and-you're-out rule has not been effective because diners can and do open new OpenTable accounts with a different email addresses, escaping their unsavory histories. There is little cost to losing an OpenTable account because good behavior is not rewarded. That OpenTable VIP badge simply rewards those who frequently use the service, and there are few, if any, perks bestowed to diners with the status.
Ratings System With Rewards and Punishments
A ratings system that rewards well-behaved diners as well as punishes no shows would create a huge incentive to maintaining status. Five-star diners who show up and behave themselves would get prime tables. Diners with fewer stars would only be offered less desirable times at less popular restaurants, and jerks would be shut out altogether. Knowing they are being rated would motivate diners to behave, and ratings would follow diners to different cities.
In fact, some high-end restaurants are already taking extreme measures to avoid reservation-flakes, forcing diners to front money for their tables. Nick Kokonas owner of Chicago's famed Alinea, requires diners pay for the entire meal when they book. And diners pay slightly more for peak times. Kokonas says this ticketing model has reduced his no-show rate from over 15 percent to around 1 percent.
"The reservation apps are totally customer-centric, but they don't really solve the restaurant's problem," says Brian Fitzpatrick, Kokonas's chief technology officer. "One of the biggest problems isn't just no-shows, it's when only part of the party shows and you have to give a party of two the table of four they booked. With tickets, restaurants know exactly who's coming.
"Restaurants also have the revenue upfront," he adds. "That means they can work out better deals with their food suppliers. That means cost savings and less waste."
Tickets for Set Times and Dates
Kokonas first tried ticketing in 2011 with his restaurant Next, and now uses it at his other establishments. He and Fitzpatrick are developing software that other restaurateurs can use too. Thomas Keller, owner of top restaurants French Laundry and Per Se, is a financial backer, and is expected to start using the service.
The concept is simple: instead of calling, prospective dinners will visit a restaurant's website and buy tickets for a set time and date. Restaurants will also have the option of only asking for a smaller deposit -- say $20 -- that is applied to the check. The software will be ready later this year, and 17 restaurants have already signed up.
Customers who expect to use the service to shop around town for a table will be out of luck. "It's intentionally not a search engine. There's Google for that," Fitzpatrick explains. "The whole idea is the relationship between the diner and restaurant."
Prepaying is most likely to benefit destination-restaurants that feature superstar chefs and restaurateurs, and prix fixe menus. Tickets turn fine dining into a major event. And, in that sense, it's a great concept for special event dining, like a graduation dinner, an anniversary, or birthday meal.
But it's not clear the dining public is ready to rethink how they pay for a more typical night out, when there is a good chance their baby-sitter will flake. Blinderman says even asking for a credit card upon booking risks alienating customers. "People think of restaurant reservations as free," he says. "They get offended at the idea of paying for something they did not have to before."
Reviewing the Diners
It's safe to say that smaller, more casual restaurants have a more fickle customer base, leaving them with less leverage. And that's where diner ratings come in: they bridge the information gap, giving restaurants a shot at avoiding dodgy customers at virtually no cost.
Armed with diner ratings, restaurants won't need to overbook. They might also become more transparent: There's another reason prime tables are hard to find online: every time someone books through OpenTable, the restaurant pays the site a fee. That means Blinderman, along with many other restaurateurs, don't offer prime time tables on the site. They can fill those tables with people who call the restaurant directly, saving the fee. But the certainty they would gain from ratings might make putting those tables online more palatable.
Now consider: the very fact that OpenTable has all this information means they could use it as the start of a ratings system that would fix the no-show situation for restaurants forever. But if you're wondering, the company says it has no plans to do so at this time. Silicon Valley startups looking for an older dotcom company to disrupt might want to take note.
Ratings would empower restaurants, whose own reputations can be sunk on sites like Yelp, to hold customers accountable. Rather than resorting to premiums or tickets for prime tables, ratings would keep fine-dining open to the well-behaved, unconnected, disorganized masses. Well, to the masses who don't mind shelling out for a $100 meal, anyway.
Allison Schrager is an economist with a focus on pension issues. This story originally appeared on Quartz.