Nick Kokonas was a successful derivatives trader in Chicago who also liked to eat out. But when he met chef Grant Achatz in 2004, he discovered two things fast: the world of restaurants hadn’t kept up with the technological advances that had altered the world of finance, and the failure of restaurants to adapt to optimizing its seats the way airlines had done was a potentially giant business opportunity.
So he quit the trading floor, went into business with Achatz, and within a few years their Chicago restaurant Alinea had three Michelin stars (the highest ranking) and a list of “world’s best” awards. While Achatz cooked, Kokonas formed Tock, a different approach to restaurant reservations. According to Kokonas, online services such as OpenTable do not require restaurants to show all their open tables each night; prime-time spots tend to be held for their own purposes, just as with an old-fashioned reservation book.
With Tock, clients buy “tickets” to restaurants, allowing them to choose from the establishment’s entire book—in other words, the true availability of tables—and pay for the meal in advance, just like seats on an airplane. Tock pitches itself as a full software solution that allows already strapped restaurants to see their billings ahead of time and thus to control costs.
The aim is to give busy clients a way to purchase a 7:30 p.m. reservation at an in-demand, high-end restaurant such as New York’s Eleven Madison Park. Currently 200 restaurants in 38 cities use Tock, according to Kokonas, including French Laundry and Marea. Peter Elliot sat down with Kokonas at Bloomberg’s New York headquarters to discuss what it’s like competing against OpenTable, the largest North American provider, as well as new startups in this category. The race is on.
Where do restaurants stand on the online reservation game?Somewhere between fear of change and the fear of missing out. What’s happened is that the industry has come to terms with the fact that things are changing. Restaurants know there are choices beyond OpenTable, and yet they don’t quite understand how people “discover” restaurants now. They don’t quite understand social media.
Let’s explore what you mean by “discover.” Do you mean, “I feel like X or Y today?”Exactly. And where do you start that search usually? Our data shows that most people start at Google or social media and Facebook, typically. What I like to say when I’m talking to restaurants—I’m going to speak like a caveman now—“Internet big, affiliate marketing program small.” And they kind of get it.
Surely everyone starts their search in a unique way?Your customers are spending time on Google, and that’s where they start. They go, “Hey, I’m in midtown Manhattan. What’s near me?” Then they learn a lot from their friends and social media. So they’ll see a lot of posts on that restaurant and go, “OK, what’s that?” It used to be that the networks like OpenTable, Zagat, etc., drove reservation behavior. But now it starts at Google, and those guys are clever. Their search engine optimization is better than a restaurant’s SEO can ever be.
How do you get clients in the door vs., say, OpenTable? OpenTable is really about telephone replacement. That was phase one for all of us. We’re now in a new phase. There’s Tock. There’s Resy. There’s Reserve. Everybody and his mother thinks they have some kind of solution. What we’ve learned from the OpenTable phase is that there’s telephone replacement, but there’s also the concept of loss aversion. Accurately and predictably laying out a way to minimize all the stuff that can go wrong is what will make the difference for reservation platforms.Do any of them mimic how human beings behave?One of the people that I like talking to is Richard Thaler, who is a behavioral economist. The way that people think they behave and the way they actually behave are often two different things. When we started building this four or five years ago for our own restaurants, I didn’t know the concept of “loss aversion.” But what we try to do is create just a tiny bit of this idea in our potential clients. They put down a $5 or $10 deposit—it doesn’t take much—and the no-show rate goes away. On Valentine’s Day this year, restaurants that we tracked in Chicago were running 34 percent no-show rates. So what do they do? Well, they massively overbook and just hope that they get it about right. Otherwise, they’re going to lose money that day. But then there is that one restaurant that everyone shows up to, and it’s a train wreck.
More often than not, I can’t get a table around 7 p.m. using most online reservation platforms. Why?Here is the dirty secret that everybody knows. A restaurant always holds a couple of pocket tables for their great customers. It doesn’t matter who you are. A hotel holds back a couple of rooms, and a restaurant holds a couple of tables as a stopgap measure, in case the fish doesn’t get delivered because they had a snowy day in New York. You never see a 7 p.m. table on OpenTable because a restaurant knows it will always be booked in a busy city like New York on a Friday and Saturday night. Even if you’re a crappy restaurant in an out-of- the-way part, you’re still going to be full, so you don’t put those on because you don’t want to spend the dollar per cover that they charge you. We don’t do that. We’re just a flat software-as-a-service fee, so they have an incentive to put all their inventory on.
But still, everybody wants the Friday 7 p.m. table. Well, the great thing is that the way we structure our business is that there is no disincentive for a restaurant to put their entire inventory online. Let’s say you are an Acme Client who happens to go to Roister three times a week, and you want the Friday table at 7 p.m. Tock automatically flags that person from the software. We can also do unlisted tables as well. You could literally tag people as, “Hey, this guy is a regular. If he hits this threshold, then these tables become available.”
So it’s about time management?I’m an ex-trader. Time is money.
This article was provided by Bloomberg News.
