Should Priceline's OpenTable Take a Page From Uber's Playbook?
Despite the popularity of theride-sharing app Uber, customers have a visceral, negativereaction to its surge pricing policies that kick in during peak demand periods. Rides that would normally cost just a few dollars suddenly become exponentially more expensive, sometimes increasing up to hundreds of dollars,as faressoar inresponse to an increased number of passengers looking for a ride.
The restaurant industry may be about to embark on a similar course, and the vitriol that is hurled at Uber forraising prices when its service is needed most may also heap scorn onrestaurants that only make tables available at the last minute for customers able to pay for the privilege.
A surge of interestOnline reservation serviceOpenTablesays it is experimenting with its own form of surge pricing that it calls "premium reservation," and if successful will roll it out to more venues.
OpenTable, which was acquired byPriceline.comlast year for $2.6 billion,says it will be testing its new reservation policy at the high-end Mexican restaurant Cosme located in the Flatiron district of New York. On Friday and Saturday evenings, the high-end restaurantwill set aside a few extra tables for people making last-minute reservations.
When a simple tortilla dish can cost $20 or more, OpenTable thinks restaurant customers won't mind shelling out to get a reservation at high-end Mexican chain Cosme. Photo: Cosme.
Considering reservations are usually fully booked a month in advance or more, this could be an opportunity for customersto eat at one of the city's hottest restaurantsat a moment's notice.Not surprisingly though, you'll have to pay for the privilege.
Pay up to sit downOpenTable is typically free for patrons booking areservation, but aPremium Reservation for two will cost you $50 while one for a party of four will run $100.The reservation service says their research revealed diners are willing to pay to get those last-minute seats at the most popular restaurants.
Certainly, someone who can afford to plunk down $200 for a dinner for two that might otherwise cost you $20 at Chipotle -- and for no other reason than being seen at a hip, trendy restaurant -- likely won't mind paying extra to make sure they get a table there. As OpenTable suggests, they might even demand it. And with the entire premium paid going to the restaurant, there will be a big incentive for these restaurantsto sign up and make tables available as it rolls out more broadly.
The simplicity of OpenTable's software, whether online or on your mobile device, has made its technology popular among restaurants and their customers. Image: OpenTable.
OpenTable makes money from restaurants by charging them the following:
- a one-time installation fee
- a monthly subscription fee
- a fee for each guest seated through online reservations
This past quarter Priceline reported the service produced "double-digit domestic diner growth" and generated revenues of $62 million,an increase from the $61 million it generated in the first quarter, which was up from the $53 million OpenTable made in the yea-ago first quarter.
The article Should Priceline's OpenTable Take a Page From Uber's Playbook? originally appeared on Fool.com.
Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Priceline Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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