A Teaching Case on the Benefits and Costs of Restaurants Using Opentable Online Restaurant Reservations

INTRODUCTIONJim Riddle stared at the report he had just printed out. It showed that sales for his employer, Classy Cuisine Fine Dining, had been flat for the last five months. Jim had just left a meeting with Classy Cuisine's general manager (GM) and CFO. They had expressed concern about the restaurant's lack of sales growth and its future prospects. Classy Cuisine had only been open for 18 months and performance was well below the expectations of Classy Cuisine's investors. Weekend business has been strong but Sunday through Thursday sales were weak.Classy Cuisine is a stand-alone, medium-size, and fine dining restaurant operating in a beach community with a population of about 22,000. However, the community is adjacent to a city with a population of over 800,000 people. Currently, a dinner at Classy Cuisine is likely to fall in the $26 to $58 range. Reservations are noted in a paper reservation book. Classy Cuisine endeavors to provide first-class service and has a recurring clientele.At the meeting, Jim, as controller, had been tasked with analyzing a reservation system, OpenTable that the GM was considering adopting as way of energizing sales. Jim was already familiar with OpenTable: he had been using it for a few months to make restaurant reservations for himself. He had found it very user friendly and helpful; a wonderful free service that simplified making reservations at a wide variety of restaurants in his area and beyond. He had even used it for making dinner reservations in another city when he traveled there for a conference. He was a satisfied user and agreed with the GM's belief that OpenTable could be a useful tool for Classy Cuisine to improve its sales outlook.An OpenTable representative had already submitted a proposal to Classy Cuisine, outlining the benefits of the service and presenting four choices for the way OpenTable could be implemented. Jim was to report back to the GM and CFO with his recommendation for whether OpenTable should be adopted, and if so, which of the four plans the restaurant should choose.OPEN TABLEOpenTable was born in 1998 because its founder, Chuck Templeton, identified a need to be filled when he observed his wife finding it difficult to make a dinner booking over the phone. Similarly, the idea for Disneyland was born when Walt Disney observed the lack of an amusement park where parents and children could experience attractions together and in a clean environment. OpenTable became a public company in 2009 and The Priceline Group acquired the company in July 2014.OpenTable is the current world-wide leader in online restaurant reservations, operating in Australia, Canada, China, Germany, Ireland, Japan, Mexico, the U.K., the U.S., and elsewhere. OpenTable users can make reservations through the company's dedicated website, its mobile app, or through a partner site such as Zagat or Facebook. Although OpenTable has some 600 partners, only five to ten percent of the reservations are made through their sites.Restaurants pay OpenTable for participating in its services. The different payment plans offered to restaurants are explained below in the next section.Besides offering a convenient way of making reservations, OpenTable also has a "point" system for rewarding frequent diners. When a reservation is actually used, the member receives 100 points that accumulate in his or her account. When OpenTable members have accumulated dining points to a minimum level, they can redeem their points for dining rewards that can be used at any participating OpenTable restaurant. Some restaurants sign up for 1,000-point offers to attract diners at off-peak times. Those restaurants pay OpenTable extra per diner for this.It is not known to the general public that OpenTable offers more than just online reservations. The company also provides reservation management services to its client restaurants. These services, such as serving as a backend for a restaurant's own reservation system and providing historical reservation data, can be very valuable to the restaurants. …