In New York City, a growing number of the most popular eateries have decided to eschew reservations, opting instead to test patrons’ patience. Often couched in the cultural parlance of the city’s food scene, the trend is a stark example of the pervasive impact which local technology has on the economics of the restaurant industry.
For restaurant owners, the decision to forgo reservations is mostly economic, says Luke Panza, co-founder of NoWait, a Pittsburgh-based startup that has developed an app to improve the waitlist experience for both restaurants and diners. Reservations present both an organizational challenge and a financial liability: every no-show or late arrival means one less seat filled and few dollars less in the register.
As long a customers are willing to wait, there’s little incentive for restaurant owners to book seats in advance. A first-come-first-serve model effectively passes the cost to the consumer, allowing restaurants to seat tables immediately after a customer leaves and maximize the revenue generated for each table every night.
So why are diners suddenly willing to bear the brunt of an hour-long wait? In part, I believe, it’s because we plan less than we used to. With a cornucopia of local discovery tools a tap away at, it’s simply less efficient to commit to a restaurant ahead of time. Instead of trying to predict what we want or what time we’ll get out of work, we can search and compare restaurants based on our criteria at the moment of purchase.
On-demand economics have already shook up a number of so-called offline, or local, industries. The starkest example is in transportation, where Uber has turned the taxi industry on its head, yielding massive protests and arguably the fastest-growing company in history. But the model has also started to impact more mundane aspects of our day-to-day lives, with investors pouring millions into startups that want to rethink tasks like laundry and home cleaning.
The model draws on ideas of a changing consumer. The way we shop has gone into hyperdrive, with consumers discovering, considering, and buying in one fail swoop. A November 2013 study by Google found that of the consumers who use their mobile device to conduct research, over half want to purchase the product within an hour and another 83% want to buy it before the end of the day. Waiting, as it were, is simply not an option.
That’s why some investors have put their bet on NoWait. Earlier this month, the company raised $10 million from a laundry list of venture investors to expand its system that helps restaurants keep the perks of a first-come-first serve systems while retaining some of the customer experience benefits of reservations.
Like most of these services, NoWait is a two-sided network. A restaurant’s staff uses a mobile app to keep stock of its wait list, marking when new diners are seated and existing customers get up to leave. Then, in a separate mobile app, consumers scan the wait times for participating restaurants and add their names to the list. The app keeps the user updated on the wait time, and if a user misses their chance they’re simply keep in a digital queue — not a physical one.
The wait also presents a new opportunity for complimentary businesses nearby. Panza suggested that the company could eventually build a marketing product into its platform, allowing other complementary businesses to advertise to users as the wait for their turn in line. A cocktail bar, for instance, could advertise to people as they wait for a restaurant nearby. That’s additional spending in a local economy which has traditionally remained tied up while customers were forced to wait in a physical line.
While the cash infusion will surely help, there’s a number of ways the industry could shift to squeeze the younger firm. For instance, the deluge of new point-of-sale companies could build a wait-list feature into their products, and then partner with a consumer-facing company like Yelp to integrate a wait-list feature into their listings product.
But is clear that a waitlist product, of one sort or another, will be part of the emerging hyperlocal ecosystem. These on-demand features have deep implications for the way restaurants — as well as other verticals — manage their business. But they also spell trouble for a company like OpenTable built around a older behavior.
Steven Jacobs is Street Fight’s deputy editor.