Restaurant reservations remain an endless source of fascination for me so I was struck by a recent article on Slate suggesting that restaurants sell reservations (Restaurants Should Sell Reservations, Dec 28). Here’s the pitch:
Walking past a bunch of people standing in line to wait for brunch tables just now, I’m reminded that there seems to be a compelling logic behind the idea that restaurants ought to sell reservations separately from food or drink. The price of a steak is determined by the food cost and the food cost ratio that a restaurant needs to make its economics work. But as there’s clearly higher demand for a table Saturday at 7 p.m. than Tuesday at 5 p.m., making the Saturday reservation should cost you extra.
The author notes that Alinea here in Chicago sells reservations (which we have covered before with its sister restaurant Next) and argues that while Alinea is very high-end that a similar logic should hold at less lofty places.
But for a more ordinary restaurant—good food, good service, good decor, but nothing to make a huge fuss over—timing is really important. A table outside on a nice day at the prime brunch hour is a delight, over and above the value proposition of the food. Putting the table and the time itself up for sale over and above the price of the food would be a smart move.
So is this a good idea? I am not necessarily convinced. There are a couple of things in play here. First, Alinea is not necessarily the right benchmark. They don’t sell reservations in advance; they sell meals. They can do that because they offer only a prix fixe tasting menu so not only will everyone at the table be eating the same thing, everyone at the restaurant will be eating the same thing. That won’t work so well at brunch when customers all want to order different things. Indeed, this is one of the unique challenges in thinking about revenue management at a restaurant as opposed to airlines or car rentals. With travel, you commit to the bulk of the costs when you reserve the service. You may end up paying for food once your on the plane but that will typically be a much smaller charge then the cost of the airline ticket. With restaurants, it’s a different story; what you pay depends on choices you make after you arrive and unless you are in the mood to totally turn the dining experience over to Grant Achatz, you value that choice.
Which is not to say that no one charges just to get a reservation. Donald Trump does it! The Trump Hotel here in Chicago has The Terrace, a lovely outdoor space overlooking the river. Here is their reservation policy:
Seating is accomodated on a first come first served basis, however we are offering limited reservations for our premium tables, which offer the most exclusive city views from The Terrace. There is a table fee of $100 per person, which does not include food or beverage. All reservations are weather permitting. In the case that you need to cancel your reservation, we ask for two hours prior notification to avoid a penalty of $100 per reserved guest.
(Aside: There is a typo in that quote that I didn’t introduce; I just copied it from their website. It strikes me as perfectly Trumpian to be demanding a lot of money for exclusive views while being sloppy in the asking.)
That is obviously a stiff fee and I suspect that they only get away with it because it is a pretty pricey restaurant in a super pricey hotel (the chicken wings are awesome but will set you back 25 bucks), the wait can be long on a nice day, and only a limited number of tables are available via reservations.
That actually points to why this fee might work at The Terrace. The wait matters. At a lot of restaurants that take reservations there generally isn’t one. If you give out enough reservations, you can fill the place and not really deal with walk-in customers. Said another way, there is an interaction between a restaurant’s reservation policy and the amount of walk-in traffic it gets. (I actually have a paper on this topic.) The Trump doesn’t want to kill walk-in traffic. It caters to a more spontaneous crowd looking for a hip place to hang out on a summer day — if the weather is nice. Trump can charge for reservations because it is irrelevant for most customers. In many ways, it is more like a restaurant asking for a deposit before setting up a private dining room.
Now a more typical restaurant can also serve a mix of reservation and walk-in customers but in a competitive market, it’s not clear that it wants to charge for reservations. If there is a limited number of customers seeking reservations and there is a set of restaurants over which they are largely indifferent (i.e., we ain’t talking Alinea), they are first going to seek a reservation from the firms with lowest reservation costs whether that is an explicit fee or just a question of which requires the least hassle. With enough capacity in the market, that is going to push all the restaurants to offer reservations for free through OpenTable.
There is a final point to think about that gets back to the original quote. If this question has come up after seeing people standing around for brunch, why don’t more restaurants offer reservations at brunch? There are likely a couple of reasons for that. First, reservations reduce capacity. A typical party might need a table for an hour but there is going to be variability around that average. If the restaurant wants to assure that someone with a 12:30 brunch reservation is going to be able to sit down at 12:30, they need to budget sufficient time for whoever has the table before them — that will mean giving them more than an hour to eat. Hence reservations will mean fewer parties seated.
Second, no shows undermine reservations. (I’ve got a paper on that too.) If not enough reservation holders actually show up, the firm is better off not offering reservations. To the extent that getting to brunch on time on Sunday morning depends a lot on what happened Saturday night, I would expect that most brunch restaurants would see a high no-show rate.