Restaurant.com Drives New Eat-In Diners
Using the Web to drive customers to restaurants via online ads, 2-for-1 coupons, certificates, menus and/or reservations is a big idea that hasn’t totally arrived but is getting closer. There has definitely been some progress in the space. For instance, OpenTable, the high-end reservations manager, appears to have finally secured its niche.
Restaurant.com hopes it has similarly broken through for mid-level eat-in dining establishments with tables to fill. The 125-employee service is based primarily on selling heavily discounted $10, $25, $50, $75 and $100 certificates. Consumers pay an average of $13.
To date, more than 8,000 restaurants have agreed to accept the certificates. Many were roped in by a field sales force of 75. Some leads were initially generated by sales affiliates such as Sysco, the leading food distributor to restaurants.
Since all sales proceeds go to Restaurant.com, it has the power to discount as heavily as it likes. The restaurants, meanwhile, get new customers, as well as a number of value-added features, such as customer feedback, name and e-mail database management, and reservation tools.
It can be a good deal for users and restaurants alike, especially when the value-added features are weighed in. The rule of thumb is that food ingredients cost $1 for every $3 charged. So a $25 steak entree, for instance, costs the restaurant about $8. On top of that, customers will end up exceeding the certificate value by $10, perhaps spending around $35. That makes the cost of a lead — potentially, a lifetime customer — about $7.
According to the company, it attracts a broad-based demographic. That’s a good thing, because a discount service based on fixed income users probably wouldn’t go far. It also has slightly more women users than men.
A secondary part of the business model, accounting for roughly 20 percent of its revenues, is the sale of the restaurant certificates as sales inducements. For instance, Home Depot offers certificate for people who order kitchen cabinets. Since the corporate program was introduced two-and-a-half years ago, companies such as Staples and United Airlines have taken part, as well as financial planners and mortgage brokers.
President Cary Chessick says the service learned the hard way that restaurants are willing to participate in the core certificate program “but you have to quantify results.” The service does that by encoding every certificate so. “It is a profit improvement system,” he says.
When originally launched in 2000, however, the company was more of a restaurant directory and placement on the results page. “They didn’t buy in. They never heard of Restaurant.com,” says Chessick. While restaurants have never heard of the service, the irony, of course, is that the URL is a good type-in. Consumers will often find the service by accident.
A key feature of the service is that it contacts consumers after they’ve eaten to get feedback on the experience. To date, the service has aggregated 500,000 reviews. They’d be valuable on Google or Yahoo!, but Chessick says they’ve been kept for the exclusive use of the restaurant. That could change in the future, but there are no firm plans to do so.
“The restaurant is our partner,” he emphasizes. “If someone has something negative to say, the owner can contact the customer right away, and offer a free desert” or similar inducement to come back.
I have some personal experience with the service. Last year, a group of my friends bought a certificate for friends who were moving to the Sacramento area. We paid $50 for $150 worth of dining. My friends were totally delighted, and it worked perfectly.
The number and quality of the eating establishments, however, varies from market to market. In my neck of the woods, in north San Diego, Restaurant.com has only been operating for a year. The choices in my 92009 ZIP code are pretty much limited to schlocky tourist traps. Stronger markets with more years of experience include Chicago (the service is based in suburban Arlington Heights), Northern California, San Francisco, New York and Atlanta.
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The business models seems to be working for them. The simplicity of it is inticing for copycat businesses. Yet it seems like restuarants can cut out the middlemen and sell directly on ebay themselves, keeping the $10.