The Economics of Everyday Things - 59. Restaurant Reservations

Episode Date: August 12, 2024

Thanks to online booking platforms, the way we make reservations has changed — but a table at a hot restaurant on a Friday night is still a valuable commodity. Zachary Crockett books a four-top for 7 p.m. SOURCES:Lisa Blount, director of marketing and public relations at Antoine’s Restaurant.Adam Iscoe, writer. RESOURCES:"Why You Can’t Get a Restaurant Reservation," by Adam Iscoe (The New Yorker, 2024)."New York Passes Bill to Make the Restaurant Reservation Black Market Illegal," by Emma Orlow (Eater, 2024)."When Canceling Your Reservation Costs as Much as Dinner," by T.M. Brown (The New York Times, 2024)."65% Of Diners Go Directly To A Restaurant’s Website To Book A Reservation," by Tessa Zuluaga (Toast, 2024)."No-Show Diners by the Numbers," by OpenTable (2021)."Selling Reservations Democratizes the Dining Experience," by Tyler Cowen (The New York Times, 2015).Antoine's Restaurant. EXTRAS:"Why You Shouldn’t Open a Restaurant," by Freakonomics Radio (2018).

After Lisa Blunt met her husband Rick, she started working at his family's restaurant. And it wasn't just any restaurant. Antwans is the oldest family-run restaurant in America. We're also the oldest restaurant in New Orleans. Blunt is now the director of marketing and PR at Antwans restaurant, and her husband is CEO. Antwans has been serving food for more than 180 years. When Blunt joined the team in 2013, she found that some aspects of the business were a little behind the times, like the reservation system. Right after I had met my

husband, we were on a trip in Florida and he said, hey, where are we going to go to dinner? And I said, oh, I made reservations at this restaurant. And he goes, well, when did you do that? I go, open table. You know, don't you know about open table? And he's like, oh, they always talk to us, but it just doesn't work for us. And I'm like, well, you better figure that out because we need to do that. They did figure it out. and pretty soon they saw results. Within six months, we had 25% more reservations, and that was what we call butts in seats. More butts in seats is the goal for every restaurant. It's an industry where 80% of businesses fail within five years of opening.

So attracting more customers can mean the difference between staying operational and closing the doors forever. Reservations can help restaurants plan how much produce and wine to order and how much staff to bring in on a given night. We get to be smarter, which has a huge dollar impact on our bottom line. Online systems like OpenTable and Rezzy have made it easier than ever for diners to book tables. For Antoine's, that has been beneficial.

For some other restaurants, not so much. There's a real problem going on with these apps because it allows folks to basically scalp reservations online. And this is a real harm to the restaurants. For the Freakonomics Radio Network, this is the economics of everyday things. I'm Zachary Crockett. Today, Restaurant Reservations. Antoine's restaurant opened its doors in 1840 in New Orleans. It was founded by a young

French chef named Antoine Alsiatore. Lisa Blunt says that when Antoine arrived in the U.S., he wasn't planning to open a restaurant. What he opened was essentially a pension. In those times, food was connected to a bed. You didn't go out to eat per se like we do today. You would probably be traveling and then you would stay somewhere and you'd have a meal that was offered to you. In the very early days, people would write letters to request to stay at the pensione and then later to eat at the restaurant. Things pretty much stayed that way until the 1890s, when Antoine's son Jules took over. By then, New Orleans had changed, modern hotels replaced pensions, and Antoine's had garnered

a reputation as a fun place to enjoy a meal. Jules relied on his gregarious personality to bring in business. There was an opera house and he'd go talk to the people attending the opera and the star of the opera and say, hey, you know what, I got a great place and you should come here because it's a great party. And that was kind of the way we got reservations. Jules' son Roy took over Antwans in 1930. And that was kind of the way we got reservations. Jules' son Roy took over Antoine's in 1930. Reservations were still mostly made by word of mouth and letters, and Antoine's became a destination.

The restaurant hosted Franklin D. Roosevelt, Babe Ruth, Judy Garland, and Walt Disney. Back in Roy Alcitor's day, a new technology emerged to replace the written request for a reservation, the telephone. Roy, for one, was not pleased. He was very disturbed that people were just able to call and say, hey, I want to come to Antoine's.

He was like, oh, no, we can't do that. You know, how are we going to handle that? No, that's not the way we do things. In the end, Roy Alciator adapted. He did start picking up the phone and saying, wow, this is a lot easier and I can get a lot more information about this party or this reservation that way. Antoine's eventually employed more people

to take reservations over the phone. And they kept track of those reservations on big paper calendars into the 1990s. When Blunt's husband Rick took over in the mid-2000s, he replaced those calendars with a computerized reservation system. It really allowed everyone to look at that system, to look at the people,

look at the data of what was going on. We joke that, you know, too bad he didn't invent OpenTable, but he did have a computerized system. Antoine's is an unusual restaurant. It's been around for most of two centuries, has 14 dining rooms and seats around 1,100 people. But at its core, Antoine's is just like any other restaurant,

trying to fill as many seats as possible, keep track of reservations, and make smart decisions. Today, the restaurant uses the online reservation system, OpenTable, to manage its reservations. And Lisa Blunt says knowing who to expect each night is a major asset. Every day is an algebraic equation. OpenTable has helped us because we can go in there and we can say,

hey, we're going to let a lot of people come in at 7 o'clock tonight. And if we can plan as a restaurant and figure out how we can staff it correctly and then overlay that with the amount of food we're going to need, we become smarter and we got a lot of information from the customer and then we can really perform. Reservation apps help customers too. A survey from the restaurant technology company Toast found that 65% of diners go directly to a restaurant's website

to book a reservation. Then they use whichever platform is available there, whether it's OpenTable, Resy, Yelp, or Toc. That service is typically free for the person making the reservation, but not for the restaurant. Both OpenTable and Resy charge restaurants a monthly fee of a few hundred dollars to use their service. Depending on the plan,

OpenTable may also charge a cover fee of around a dollar per person for a reservation. Blunt says that for Antoine's, the expense is worth it. Essentially, it's a marketing cost. The other thing is within OpenTable, in the algorithm, you can pay to have a higher presence there, and that's more money too. But taking a reservation can be risky for a restaurant. According to an Open Table analysis, 28 percent of Americans said they failed to show up for a reservation in the past year.

No shows right now are probably running in about the 10 to 12 percent range, and that's where walk-ins become really important too. Blunt suspects that sometimes customers are keeping their options open. I think that people make reservations at multiple restaurants and that adds to the no-show rate. And they're like, oh, it's okay if we just don't show up there. But there are others who make

multiple reservations for a different reason. At the most popular restaurants, reservations are a valuable commodity. And there's a thriving secondary market for buying and selling them. That's coming up. Not everyone is a fan of making restaurant reservations. Some people, like New York City-based writer Adam Isco, prefer taking their chances with a walk-in. I'm happy to put my name down at a restaurant, talk to the host. They may say, come back in an hour, come back in an hour and a half, go down the street to the bar, to the park, and then come back.

But this strategy doesn't work at the most popular restaurants, where seats can be booked months in advance. Isco wanted to get a better understanding of who exactly is reserving all of those tables. He recently wrote a story for The New Yorker called, Why You Can't Get a restaurant reservation. The restaurants are holding back tables for celebrities and VIPs and big wine spenders and friends of the managers and chefs and line cooks and the list goes on and on and on. What I was seeing on Rezzy, what I was seeing on Open Table, what we all sort of see when we're making a restaurant reservation is not actually a reflection of reality.

I started to realize there's all these ways that one can make a restaurant reservation if you want to get in. It's just sort of not on the surface. If you're looking for a reservation at a trendy place, odds are you won't find a table on the reservation apps or by calling the restaurant. And that's when a lot of people sort of give up and they say, looks like I'm not eating at Saylor or at Fort Charles or at the Polo Bar tonight. But what folks don't realize is that there are a number of other ways to make

a restaurant reservation. For instance, if you have a certain type of high end American Express card, you can contact a dedicated concierge to help you book a table. In some cases, restaurants hold tables specifically for these customers. There's also a reservation app called Dorsea, which caters to exclusive customers and restaurants. It resembles a sort of private membership club. Restaurants partner with Dorsea and you can prepay for a meal at a restaurant where it's hard to get a table like Carbone. So basically, upfront, you're paying, let's say, $1,000 for a two-top at Carbone via the

app. You're not paying for the reservation per se, but you're paying for your entire meal upfront. Now, that meal is not going to cost you $1,000. You basically have to order the entire menu to hit $1,000. But that's another way in. And if all else fails, you might be able to buy a reservation. Not from the restaurant, but from another customer. Appointment Trader is a website where you can buy a reservation for hundreds and hundreds

of dollars in many cases. In the old days, you might walk up to a maitre d' and palm them a few hundred dollars for a table. Nowadays, you're palming a stranger's hand via the internet. I was just looking right before I sat down in the studio. At this very moment, there's a five o'clock four top for Saturday night listed at Fort Charles Primary in the West Village for $990. That's before you sit down for their famous 37.99 Wagyu cheeseburger. That's $990 just to walk in the door. And that money's not going to the restaurant.

That's going to someone who calls themselves a hustler on appointmenttrader.com. As Isco reported in his New Yorker piece, the hustlers taking advantage of this secondary market are often college students or hotel concierges. They told him they can make as much as $70,000 to $80,000 a year selling restaurant reservations, in much the same way that a scalper resells concert tickets. They might make those reservations themselves by knowing exactly when to click. Or they might use bots, which can find

and make competitive reservations much faster than a human can. These sellers are taking on very little risk. It typically costs nothing to make a reservation. If they can't sell it and no one shows up at the restaurant, it's not a problem for them. On the other hand, it's a huge problem for restaurants. It's devastating to a restaurant to have an empty seven o'clock table on a Saturday night. One operator told me a story about they're opening a new restaurant. It's highly anticipated. And

despite the fact that the restaurant is fully booked on paper for the evening, the dining room is two-thirds full and they're wondering what is happening. Someone had booked and resold reservations online, but those reservations didn't sell and so the dining room sat a third empty. It can make the difference between a profitable or a non-profitable night and over time that really can make the difference for the restaurant overall. This doesn't just happen in New York. You can find reservations on appointment trader for restaurants in other cities with food scenes, like Las Vegas, Miami, and LA. But the resale market might not last long. Rezzy told Isco they're working to prevent bots from making

reservations. And restaurant owners are getting savvier when it comes to detecting online resellers. They're also deploying another tactic, cancellation fees. Some consumers are not wild about cancellation fees, because it kind of does create a barrier to entry. Suddenly, if I can't make a reservation at one or two or three places, I need to commit. But many operators are quite excited about them. They're not seeing a sort of meaningful reduction in traffic to the restaurant because of them. Cancellation fees are catching on. According to Rezzy, in January of this year, 17% of

restaurants that use their service charged at least one cancellation fee. In New York, that number was 25%. Beyond a cancellation fee, some people think that restaurants, especially those that are in high demand, should charge a fee for the reservation itself. Economists have argued that a table at a hot restaurant is a commodity, just like the food and drink, one that should be capitalized on.

Restaurant profit margins hover between 3 and 5 percent, which means that even the slightest bit of additional reliable revenue could make a big difference. But chefs and owners don't seem interested in this approach. Many of the folks that I did speak with said, we don't want to charge for reservations. We want to be democratic places where you can have a neighbor sitting next to a tourist, sitting next to a Hollywood celebrity, sitting next to whomever else. In New York, at least, it seems that the reservations process could actually become more democratic soon.

In response to Isco's story, lawmakers in New York state passed a bill that would ban reservation resale on third-party services without the restaurant's consent. This is a first in the nation piece of legislation that's intended to, in the lawmakers phrasing, combat the secondary market. So, Rezzy will still be able to list reservations online.

Dorcia will still be able to charge $1,000 for a prepayment for a meal ahead of time because Rezzi and Dorcia have come to an agreement with the restaurant. What Appointment Trader has not done is come to an agreement with the restaurant to say, hey, we're reselling your reservations online. The bill still awaits the governor's signature.

In the meantime, restaurants are finding other ways to monetize the dining experience. For instance, there's an app called Tables with a Z. Everybody knows when you go to a restaurant, there are seats that are better than other seats, right? Famously, the seat by the bathroom, not the favorite, it's often called Siberia. What Tables is trying to say is, hey, are you willing to pay $15 or $50 for a better seat at the restaurant when you walk in? They're 3D mapping the restaurant so you can pick your seat.

Of course, there are restaurants that opt out of taking reservations altogether. And there are various reasons for that. They want to avoid no-shows and latecomers, reduce overhead costs, or generate buzz. That doesn't dissuade eager diners from taking extreme measures to get in the door. The famously in-demand Pizzeria Lucali in Brooklyn does not take reservations. But Isco observed a new tactic there. You have folks from TaskRabbit or you have folks from these line waiting services and you can pay a flat rate or an hourly rate for someone to wait in line for you for several hours to put your name down, to put your phone number down, and then you get to dine there.

At most restaurants, the problem isn't that people can't get a table. It's that there aren't enough butts in seats, as Lisa Blunt of Antwans put it. So while the reservation apps have made things complicated in places like New York City, they've been a positive force in other places. I think we got more diners. I think we got different diners. I see a lot of younger people there. If you're coming to New Orleans for the weekend and you're a foodie, one of the experiences you want is from what we call the Old Guard restaurants. And we are one of them. We can get so much information now. and we just have a more open dialogue with people.

It's on my phone. Open table is, I mean, I look at it every morning. And even though she implemented open table at Antoine's and relies on it heavily every day, sometimes Blunt still prefers to do things the old way. I am still all about the phone. I'm still about calling and saying, hi, Sarah, this is Lisa D'Antwans, and you're coming here on Friday night,

and there's four of you. Are you celebrating anything? We look forward to serving you. I think there's a tremendous amount of power in that. I think there's a tremendous amount of power in that. For the economics of everyday things, I'm Zachary Kroket. This episode was produced by Julie Kanfer and Sarah Lilly and mixed by Jeremy Johnston. We had help from Daniel Moritz-Rapson. [♪ music playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing, video game sounds playing The Freakonomics Radio Network. The hidden side of everything.