Incanto complains about OpenTable [moved from San Francisco board]
In today's Chronicle (at least in the Chronicle food blog on the web; I have no idea when or if it will appear in the print version): "Is OpenTable worth it?", by Chris Cosentino and Mark Pastore of Incanto: http://insidescoopsf.sfgate.com/incan...
They don't think so, at least from the perspective of restaurants, for two reasons: (1) OpenTable charges restaurants an amount that approximately equals the restaurant's profit margin for the average meal, thereby wiping out the profit, and (2) OpenTable has taken control of the customer relationship away from the restaurants.
I wasn't previously aware of the OpenTable business model, and found that interesting, but the rest of the lengthy article rubbed me the wrong way. OpenTable is by no means perfect, but it's made life much easier for anyone interested in trying a variety of restaurants.
Their reasons for disliking OpenTable make little or no sense to me. I suspect a hidden agenda here: restaurants don't like competition. That's understandable, since businesses never like competition. OpenTable facilitates competition among restaurants by presenting numerous options to the customer. That's good for customers, but not so good for individual restaurants, since it makes it much easier for customers to try new places.
The article implied that customers should avoid OpenTable because OpenTable is somehow taking advantage of hard-working restaurateurs. That strikes me as self-serving and wrong, but I'm curious what other people think about it.
I had a very different reaction to the article...
Pastore is simply pointing out that Open Table is able to extract extremely high rents from restaurants because they have a functional monopoly over on-line reservations. He questions whether the value created by Open Table is greater than the value they extract from restaurants and from customers (as higher costs will inevitably translate to higher prices or a lower quality experience).
Open Table is particularly well positioned as they are exploiting misaligned incentives: Open Table's customers don't pay for the service directly, and therefore don'y have to decide on a trade-off between cost and convenience. If I had to decide between paying $10 extra for dinner or spending 5 minutes on the phone calling restaurants and checking availability, I would call the restaurants without thinking twice. But Open Table has set things up so that I get "paid" $1 for using their service, and I don't notice that this is reflected in a higher tab at the end of the evening. It's an extremely clever business model, but I agree with Pastore that it ultimately may harm both restaurants and customers.
I also disagree with your statement that "all businesses hate competition." For example, any restaurant located in the Mission is extremeley grateful for the high concentration of competitors in the Mission as they help make the Mission a dining destination, as well as a desirable place to live.
My takeaway from the article? I'm no longer using OpenTable. I'd rather pick-up the telephone and support healthy margins for the restaurants I love.
This is my take on it: I'm sure restaurants have been complaining about what vendors charge them since the beginning of time. And that would be one way to view the article -- as merely a public response to people who ask them why they are not using a widely popular service.
However, if OpenTable is indeed using a near monopoly status and a lack of viable alternatives to charge exorbitant fees, there is a perfectly good reason to complain. To me, the issue is not that technology has had an impact on restaurants -- they need to deal with that just like any other type of business -- but a question of whether there is monopolistic pricing involved. Think Microsoft using its near monopoly status over the years to greatly enrich Bill Gates and Steve Ballmer at the expense of consumers. (And eventually getting convicted for it.) I use OpenTable a lot and like the service very much. However, in so far they are able to use their dominant market share to jack up prices, both restaurateurs and patrons should have a reason to be concerned. I have no independent knowledge as to whether that is actually the case, but that would be the message of the article that would make sense to me.
well, yes, but Incanto isn't on OT; doesn't use it and never has. Do they have lower prices than comparable restaurants that do use OT? (I don't think so) For that matter, did they hesitate at all to be one of the first restaurants in San Francisco to openly pass the cost of health insurance onto their customers? (No) Perhaps what REALLY bugs them about OT is that the terms of the OT contract forbid adding a seperate 'OT charge' like their 'health insurance charge' (or whatever they call the seperate percentage they add to the final bill).
It is a cost of doing business, but it isn't one they pay (and they seem to be doing just fine). I imagine they are seeing business drop off a bit, and worry that not being on OT is a factor in a resultant reduced bottom line (or just simply resent having to pay anything for a service like OT); however, I think it is more likely that if business is off that the economy is the culprit, but perhaps it is more satisfying to blame a service that one doesn't even use than to look at the harsh reality that these are tough times for everyone?
I will admit that I sometimes feel a bit guilty about using OT for my favorite places, simply because I am not sure how the OT business model really works. That said, I would not rely on Cosentino or Pastore as a source on non-biased information on that topic. The article rubbed me the wrong way too, partly because I hate the type of writing that relies on "all my friends say it is true so it must be so" to make a point. If Incanto was a previous OT user and really knew more about the system as an actual user themselves, I'd be more inclined to listen.
But then, the last time I used Incanto's home grown electronic reservation system, I discovered that the restaurant's not necessarily all positive notes about my prior dining history (including a reference to Chowhound posts) were visible to me when I went in to make a reservation. It was unsettling, to say the least. Perhaps they realize that there are (or at least were) some major bugs in their own system and could probably could benefit from a professional service. Before you complain about the big guys' having a monopoly and charging too much, it is probably a good idea to be sure that your alternative works well enough not to turn off a potential customer.
By the way, lately I've been noticing that several restaurants where I've made a reservation using OT, don't give the OT points (and tell you they won't up front; when you make the reservation you see a message that says, 'no points available for this reservation'). Canteen, a very small place, was one. Perhaps OT has a tiered system, where it costs the restaurant more for the service if you give points? I don't see any mention of that in the article, and thus, if nothing else, the article is incomplete, IMO.
In the current economy, and given that I now live more or less in the country, I don't dine out as often as I used to, and the points on OT aren't a big factor in where I choose to dine. However, I find OT to be an extremely convenient way to handle reservations, particularly when I travel, and I will certainly not change my plans to use it.
and the comparison to Microsoft? Come on, that is way over the top.
One of our customers complained that we didn't give them any points. This was news to us. We just have the standard deal and nobody from OT told us about any alternative deals.
Restaurants' prices (any business's prices) are determined by the market, not their costs. Incanto is still in business, some of its former competitors are not, and that might have something to do with Mark being better at controlling his costs. E.g. they didn't serve bread (which is downright weird for an Italian restaurant) until he figured out a way to make it economically in house.
Susan, I think you hit the nail on the head. I think it's pretty ballsy of Incanto to talk about all of the OT fees when a) they don't use the service, and b) they have no problems passing on health care fees to their customers. Though the fact that they feel compelled to complain about it seems to show that they are losing business by not being on OT.
I find Open Table a great and very easy to use service, and one of the reasons that I'm sure that Incanto does lose out on business from not being on it is the convenience of it, and the ability to compare. I use it to look to see what places are in a particular area that have openings, and to decide between them -- I also often look to see what places in the area don't have openings at the time I want, because then I can (and sometimes do) call them directly to see if they have anything that's not on Open Table. There are others of my favorite restaurants that aren't on OT, and I call them directly for reservations if I want to specifically go there, but if I'm planning a casual night out with friends, OT is the first place I check. It's not about the points, either, it's about the ease of it -- I can make the reservation any time of day or night, as opposed to waiting for the restaurant to open, or trying to call them at a time when it's not busy, I don't have to worry about shouting over the noise of the restaurant for them to hear me, or them getting the time or the number of people wrong, or them spelling my name wrong (and then insisting to me that they don't have a reservation for me when I arrive). I understand that it's a cost to the restaurant, but all of that convenience is worth it to a lot of their customers. So yeah, it sucks that it's a high cost of doing business, but there are lots of other high costs of doing business out there in the world, and I'm not going to tell a restaurant that I don't need a clean plate because water costs are high right now.
re: Robert Lauriston
See, that's good info to know and keep in mind. And that raises the other problem: restaurant websites are generally so awful that it often takes a hunt to find that information (or even just the hours and the phone number to call for reservations) or you have to sit through music or an annoyingly long Flash thing in order to even get to the main site, and some have the wrong info for their own restaurants (and many are completely inaccessible on a mobile device). If many restaurants could make it easier for people to make reservations directly with them, maybe customers wouldn't have flocked to Open Table.
Yeah, it's amazing how few restaurants recognize that the most important design considerations for their Web sites are that they be easily navigable on all platforms including mobile devices and that prospective guests can quickly and easily find basic information, particularly the hours, address, phone number, reservation link, and menus. I looked up a new restaurant on my smartphone recently and had to phone them twice, once to ask if they were open and then again when I realized the site didn't have their address.
Though I think OpenTable's ability to find available tables at a particular time for a particular cuisine and/or near a particular location would make it popular even if restaurants all had great reservation tools on their own sites. On the other hand, Yelp will often find a lot more restaurants; it doesn't know whether tables are available, but in most cases it knows if they are open at a particular time.
Robert - Re .25 vs dollar charge, that is GREAT info-- a perfect compromise for customers who want both the convenience (and/or points) of an Open Table reservation and to support restaurateurs.
JasmineG: Yes!! Could someone please just *ban* annoying flash home pages that take forever to load and are completely unclickable? And, while we're at it, annoying music that suddenly blares from your computer at the most inconvenient times?
I totally agree that this would make customers more likely to go through the restaurant page rather than OT to make a reservation. Plus, it would be a more pleasant experience.
re: Jay F
I think the point is that the restaurant in question adds a surcharge to each meal (rather than just include health care in the cost of doing business). I suppose its to make the point that health care is expensive, but all it does is mislead the customer into thinking their meal will be cheaper than it turns out to be.
If you have an issue with a health care surcharge, how about the sales tax? Why not take issue with the fact that it's not baked into the price like in Europe? It certainly makes the menu prices look misleadingly lower than what the final bill will look like. As for not baking in the particular health-care surcharge many SF restaurants charge into the price, I think there are two very good reasons for it:
1. To help remind the public that if you vote for something that's costly, you will have to pay for it.
2. To help redress the inequity between the FOH and the kitchen. If the added cost would simply have been to passed on to customers as price increases for individual dishes, that inequity would have grown worse.
re: Jay F
One issue with the Healthy San Francisco payroll tax is that restaurants with fewer than 20 employees don't have to pay it, and restaurants with over 100 employees have to pay 50% more ($1.96 per hour per employee) than those with 20 to 100 ($1.31).
If a restaurant passes the tax on to customers as a surcharge, like sales tax, their menu prices won't be higher than competing restaurants that don't have to pay it, or that pay less.
re: Robert Lauriston
Are you saying it's a good thing that restaurants that charge a surcharge can appear to have the same menu prices as those that don't, even when a meal there will end up costing more? Because as a consumer, if I'm comparing restaurants by the prices on their menus, I would certainly find that to be a deceptive practice.
If OpenTable is a monopoly, and if it's using its monopoly status to jack up prices, that's clearly a problem in the marketplace. That problem will inevitably be solved the way such problems are always solved: restaurants will resist the higher prices, and competition will appear. Bill Gates did indeed use Microsoft's monopoly position in an improper manner during the 1990s. The market moved on. When was the last time you heard about Microsoft's monopoly being a problem? People are much more likely these days to complain about Google or Facebook.
So I don't see the monopoly issue being anything more than transitory, and I've yet to see any evidence that OpenTable is in fact hurting restaurants, at least any more than any other vendor's prices. I don't know about anywhere else, but the restaurant market in San Francisco seems to be in pretty good shape. In fact, reservations are noticeably harder to get now than a year ago, particularly at high end places. That's mostly the result of macroeconomic issues that are beyond the control of restaurants or restaurant vendors, but if OpenTable is having a particularly pernicious effect, it's difficult to see it, at least from the customer's perspective.
Beyond that, the economic arguments made in the original article are clearly wrong. Arguing that restaurants can't afford OpenTable because the OpenTable charge equals the profit margin on an average meal makes no more sense than arguing that restaurants can't afford food because the price of food also exceeds the profit margin. OpenTable is a marginal expense. A restaurant choosing to use OpenTable will inevitably pass that expense onto its customers. This is no more unfair than restaurants that provide "free" validated parking, an expense that is also passed on to all customers, including those who don't use it.
And I continue to believe that this is actually about competition. In the old days, I'd decide to go out to a particular restaurant (e.g., Incanto), and call that restaurant to see if they had availability. The result was, I ended up eating at a relatively limited number of places, since I was generally making the choice based on places I'd been, or possibly places I'd recently heard about. If I ate at Incanto and liked it, they'd be on my list, and their actual competition, as far as I was concerned, would be the couple of other similar restaurants I was already familiar with.
Nowadays, I start with OpenTable and see who has availability when I want to eat. I generally end up with dozens of options, including numerous places I haven't eaten before. Even if I had previously eaten at, and liked, Incanto, they're now competing with many more options than before. That means that in order to get my business as a repeat customer, they're going to have to give me a better experience than would be the case without OpenTable.
OpenTable has made life easier for restaurant customers. I'm not terribly interested in eating at a place that tells me I have to undergo some inconvenience in order to support their business model. If Incanto wants me as a customer, they'll join OpenTable, or help create a similar, aggregate reservation system that's more to their liking but equally convenient for me.
Regarding the competition argument: OpenTable as a medium for restaurants to advertise their openings is great for competition. If the cost of using it is so high that some restaurants chose not to use it, that's bad for competition. I'm sure Incanto would love to compete with other restaurants by advertising their availability on OpenTable if they could do so for free. It would certainly make people who've never eaten there more aware of their existence.
I find it perfectly reasonable for the owners of Incanto to explain their decision not to use OpenTable. I once asked a restaurant owner why he had taken a dish that I liked off the menu. He said that they couldn't make any money on it. Apparently it took a lot more work to prepare it than the other dishes and passing the cost on to the customer by jacking up the price was not a realistic option given how much it had been selling before. It may have made me less inclined to visit that restaurant, but at least I understood the reasoning. Likewise, if the owners of Incanto don't feel that OpenTable's service is cost-effective, who can blame them for not using it.
I like the service OpenTable provides and I found it interesting to learn about the cost that is passed on to me as a customer for the convenience of using it. I'm pretty sure OpenTable charges the restaurant (and, hence, me as a customer) as much as they feel they can get away with and that may be a lot more than if they had serious competition.
Mark Pastore's main concern is not the cost but control of customer relationships:
"OpenTable has convinced restaurants to pay it substantial fees while it takes the customer relationship out of the hands of the restaurant and places control into OpenTable’s hands. Then, after having lent their names to the service, enabled OpenTable to attract online diners, and funded the construction of a powerful database of customers loyal to OpenTable, restaurants find that they themselves no longer own the customer relationship. Restaurants that want continued access to those diners now have to pay OpenTable for the privilege."
My own analysis is that OpenTable is a valuable promotional tool for a new restaurant, but once our POS system has similar tools it will likely be to our advantage to reduce our dependence on OpenTable and minimize our payments to them.
re: Robert Lauriston
Of course you have only to look at susancinsf's post above to realize that having the customer relationship out of the restaurant's hands might not be a bad thing. And if more restaurants had customer-friendly websites, maybe they wouldn't have as much need for Open Table.
I'm not sure what he's talking about when he says Open Table has "control of customer relationships." Does OpenTable prevent restaurants from independently doing what it needs to do to "own the customer relationship" they way the would if they weren't on Open Table?
re: Ruth Lafler
And that's definitely not true, because restaurants have clearly gotten my email from reservations that I've made on OpenTable and added me to their email lists. And they often follow up with confirmation/reminder phone calls of the reservation. I'm not sure why my "relationship" with the restaurant is disrupted because I made the reservation with one online computer system as opposed to another online computer system.
re: Ruth Lafler
Silly me, I thought the relationship with the restaurant begins as I step inside the door. OT is just a way to get me there. Like a doorman at a hotel.
There are so many aspects to why one would frequent a dining establishment that to take this one interaction to task is unrealistic. Too many restaurants have spoiled my experience by poor customer service or food quality that it would seem that that should be the focus of their attention.
In addition, if OT has the capacity to help a restaurant manage their tables more efficiently (not making me wait when I show up on-time for a reservation, for ex.), the "customer relationship" already is benefited. From there....the restaurant is on their own.
Mark's piece makes me think I should run the numbers on Opentable again. I have to say I'm not happy with the way they suck some charges out of our bank account and don't provide us a single itemized monthly invoice the way other service providers do.
Radiant / Aloha, one of the most popular restaurant POS systems, is working on a competing system that's much less expensive, AND integrates with the POS, which is perhaps Opentable's biggest shortcoming. Such competition might force Opentable to lower its prices, offer more flexible pricing plans, and/or provide the integration many customers would like.
On the other hand, restaurant reservations are like auctions: it's much more useful to consumers and businesses if they're all in the same system. So it will be hard for other systems to compete with Opentable, just as it's hard for anyone to compete with eBay.
re: Robert Lauriston
As an Opentable user (maybe 2x/month) it is not only convenient but also reminds me of places I might not have thought of. I would think that from the restaurant's perspective, $1 a head to get someone in the door (advertising, not needing staff to take a call) is relatively inexpensive. For me, I will use it even if it is a regular place for me - I can easily send the confirmation to my dining companion(s). I often make the reservations while working and not wanting to or being able to make a call. It also allows reservations to be made during non-opening hours. I don't think of it like restaurant.com where I really wouldn't want a favorite little place to feed me nearly for free. A fairly new place (nothing fancy) that I had thought about trying but it fell off the radar got me eating there twice because of opentable - once a last minute thing when looking for a place, and then it was so good, a week later, a friend joined us. So, it cost them a total of $5, and they probably got about $125 out of the two visits.
Creation of an alternative service shouldn’t be that hard to accomplish, since existing systems are already about 80% of the way there. Tripadvisor, for example, lets the user search for hotels, restaurants, flights, etc. If you want to search for a hotel, you enter the relevant dates, and the site sends that search to the hotel’s web site and to a variety of third party aggregators (e.g., Expedia, Hotels.com). The results come back in separate pop-up windows, all of which appear to include the same availability. I suspect the third party sites are pulling the availability directly from the hotel’s site.
This is somewhat unwieldy from the customer’s point of view, since there’s not much point in having six windows with the same information. On the other hand, there’s no monopoly problem since multiple sites are returning the same information. I don’t know how their business models work, but I doubt the hotels feel they’re being gouged.
So the user can either go to Tripadvisor or one of its competitors, or directly to one of the aggregators. Either way, the same information is presented through multiple venues.
If you search for restaurants on Tripadvisor, however, all you get are reviews. No availability, no booking service.
Yelp, on the other hand, does provide a reservation service for restaurants, but that service links into OpenTable.
The only restaurant reservation service other than OpenTable that I’m aware of is RestaurantReservations.com. However, that site doesn’t appear to have any San Francisco restaurants, and may not actually have any restaurants at all.
Again, it seems that about 80% of the necessary infrastructure exists to create a competitive restaurant reservation system. For example, if Yelp would agree to add RestaurantReservations.com alongside OpenTable, and to pop up both windows whenever a search is done, and if a critical mass of restaurants were to sign up with RestaurantReservations.com, then you’d have a restaurant reservation system that would resemble that which exists for hotels, including competing services.
I’m not sure why something like this hasn’t been done in the restaurant world, since in the abstract it doesn’t seem that hard. I suspect that, despite the complaints from Incanto, there isn’t actually that much demand for a competing restaurant reservation service, otherwise such a service would already exist.
If restaurants, like airlines and hotel chains, had their own industrial strength reservation systems directly open to the public, there would be aggregators left and right. However, if the big existing aggregator, OpenTable, owns the reservation system, it makes setting up competing services a challenge. Nevertheless, people are trying.
According to the article there are several start-ups targeting this market. As far as I'm concerned, that should resolve the problem. If there is a significant market demand for lower price reservations services, one of these competitors will succeed, and that niche will be filled. If no one else can succeed at this, then my assumption will be that the complaints are overblown, and OpenTable is in fact providing reasonable value for its services. Either way, as a customer I'm going to do what's convenient for me, so I'll be using one or another of the reservation services. As a customer, I see no reason to inconvenience myself to support a restaurant owner's business model, particularly when the vast majority of his competitors appear able to accommodate themselves to changed conditions.
I'm sure Incanto is a good restaurant. It may even be a great restaurant. I have no idea, even though I eat out in San Francisco a couple of times a week. Since it's not on OpenTable it simply doesn't exist for me, and I see no reason to seek it out, because OpenTable gives me more options than I can handle as it is.
re: Robert Lauriston
I'm not sure how to interpret those statistics. I assume that reservations aren't even a relevant consideration for most restaurants, e.g., chain restaurants, lower priced places, etc. I don't know how many non-reservation restaurants there are in the Mission alone, but I'm guessing it's in the hundreds.
So the real question is, not how many non-OpenTable restaurants exist, but how many restaurants that take reservations aren't on OpenTable? Or, for my purposes, how many "dining experience" type restaurants aren't on OpenTable? Incanto, for example, is by all accounts a very good restaurant. If there were hundreds of restaurants comparable to Incanto that aren't on OpenTable, I'd be very surprised, and that might cause me to rethink my reliance on OpenTable.
my interpretation of Robert's stats is that I certainly would *never* limit my dining out to those restaurants on Open Table: Too many places to eat that I'd miss otherwise! (and yes, many take reservations, based on my own experience).
But perhaps by 'good' you mean 'upscale'. In that case, maybe the number goes down a bit. However I'd never limit my SF dining to only upscale places....
edited to add: not sure Incanto is truly upscale, however, though it certainly is good (casual ambiance and excellent food, notwithstanding that the article annoyed me, and the service there sometimes annoys me too....).
Are you missing out if you only eat at restaurants that are on OpenTable? Probably. If we filter the 4000+ restaurants in San Francisco by only considering those that are Zagat rated and have a food rating of 22 or higher, we find around 120 that are not on OpenTable. That's around 40-50 percent of the total. (The exact number depends on how you count restaurants with multiple locations.) This number includes a few places that are irrelevant as "dining experience" places like a food truck and a couple of coffee and sandwich shops. It also depends on your definition of "dining experience" -- there are a couple of taquerias in there as well. But the bottom line is that there are many interesting restaurants that either don't take reservations, like Tadich and Bocadillos, or don't use OpenTable, like Gary Danko and Yank Sing.
Interesting. I assume you need a paid subscription to Zagat's to do that search.
I would definitely identify Gary Danko as a dining experience type of place. I've had it in the back of my mind as a place to try for some time, but never got around to it. I guess now I know why.
Yank Sing doesn't concern me as much. I eat there all the time and have never bothered with reservations. And places that don't take reservations, like Tadich, are obviously irrelevant.
So Incanto and Gary Danko are two restaurants I almost certainly would have tried by now if they'd been on OpenTable. I'd be interested in knowing what else is on that list of 120. If it turns out there are a lot of good places that require reservations but aren't on OpenTable, I might reconsider my reservation strategy.
Well, if you equate "dining experience" with fine dining restaurants that take reservations, OpenTable covers them really well. On the other hand, you would miss out on places like Bocadillos that has a 3 star SF Chronicle rating and has been on its Top 100 Restaurant list every year. Since it doesn't take reservations, it will never show up on OpenTable. Some people don't mind hole-in-the-wall places with little ambience if the food is great. Others do. To each his own. If you refuse to dine at restaurants that don't take reservations, you'll probably cut the list by half or more. (Quite a few places only take reservations for larger parties, like Beretta.) But here it is. No guarantee about absolute correctness.
A La Turca
Anchor Oyster Bar
B Star Bar
Blue Bottle Cafe
Brenda's French Soul Food
Delessio Market & Bakery
Dottie's True Blue Cafe
Farmerbrown's Little Skillet
Il Cane Rosso
Joe's Cable Car
Katia's Russian Tea Room
L'Osteria del Forno
Le P'tit Lauren
Limon Peruvian Rotisserie
Little Star Pizza
Mama's on Washington Square
Out the Door
Pancho Villa Taqueria
Pane e Vino
Papalote Mexican Grill
Patxi's Chicago Pizza
Pica Pica Maize Kitchen
Prime Rib Shabu
Rosamunde Sausage Grill
Saha Arabic Fusion
Sai Jai Thai
Shanghai Dumpling King
Swan Oyster Depot
Tataki Sushi & Sake Bar
Thai House Express
Thep Phanom Thai Cuisine
Tony's Pizza Napoletana