5 Ways Priceline Buying OpenTable May Affect Restaurants

Priceline, the online travel broker, bought OpenTable for 2.6 billion dollars last week. OpenTable dominates online restaurant reservation in the United States with about 24,000 restaurants using its application. We have discussed the goods and bads of OpenTable from a restaurant’s perspective, but the truth is that there are few competitors left.

Over half of all online restaurant reservations in the US go through OpenTable giving the company an disproportionate amount of influence in the restaurant industry. That is 47 million diners in the last 3 months. In total, it provides online reservations to about 32,000 restaurants worldwide and is poised to an international juggernaut with the help of Priceline.

What is next for OpenTable?

With this purchase, restaurateurs have only begun to start guessing how OpenTable will change now that it is owned by Priceline. And it will change. Priceline has big plans for OpenTable as they paid a 46% premium on OpenTable’s stock price.

Here is what we believe the future of OpenTable will be….

  1. Expand Internationally
    Priceline, as a much bigger company, is global in a way that OpenTable is not. OpenTable is mostly confined to North America, and in many ways, Americans are way ahead of the rest of the world in online restaurant reservation. 20% of restaurant reservations in the US happen online, while overseas it is only a small fraction. So there are big opportunities in other technologically advanced markets around the world.

    Priceline has a global sales force that can expand OpenTable, bringing with it the jet setters and business travelers. In particular, Priceline’s 9,000 employees (compared to OpenTable’s 625) are spread out in major travel destinations around the world. Expect OpenTable to make inroads in these cities especially in countries that have little online restaurant reservation already.

  2. Packaging Airline/Hotel Bookings and Restaurant Reservations
    “Travelers are diners” Priceline Group CEO and President Darren Huston said after the acquisition announcement. The simple fact is that travelers do not bring their kitchen and most find themselves eating in restaurants. Similarly, restaurants have attempted to connect with travelers at local hotels by reaching out to concierges/management and putting offers on deal sites. OpenTable can now be a natural matchmaker for restaurants and travelers.

    Knowing what city and even what hotel customers will be in, Priceline will likely offer dining deals and make suggestions of local restaurants that use OpenTable’s restaurant reservation. The marketing potential is enormous, as travelers normally have a tough time making dining decision. The only question is if the OpenTable restaurants who participate in this packaging or cross promoting will be hit with extra costs, whether through advertising or higher covers.

    Restaurants have seen this kind of premium with 1,000 point tables. Normally, a patron receives 100 rewards points per reservation, but if an OpenTable restaurant opts into the 1,000 Point Table program, a patron earns 1,000 rewards points when he or she makes a reservation (which they honor) at an OpenTable 1,000 point table restaurant. 1,000 rewards points is halfway to 2,000 rewards points and a $20 OpenTable Diner Cheque, their gift cards, and can drive extra reservations. However to be able be part of the program (which also give a restaurant priority placement on OpenTable), restaurants pay $7.50 per cover, substantially more than the normal $1 cover fee.

  3. Optimization of US Market through Consumers
    Remember those William Shatner commercials that made Priceline famous. Through clever advertising and marketing, the Priceline brand has stayed a step ahead in a very competitive market. Their marketing has worked; Priceline has made a growing profit for 7 years running.

    Although many restaurant owners might not realize it, OpenTable isn’t a top tier brand. The farther you go away from urban areas, the less and less people know of OpenTable (because they haven’t used it). OpenTable’s 24,000 US restaurants sound like a lot but there are 10,000 restaurants in Manhattan alone.

    Priceline will put OpenTable center stage and reach out to customers. We expect, as OpenTable receives more exposure, restaurant owners will feel even more pressure to join OpenTable restaurant reservation service/network or be cut out of the market. The growth of OpenTable in the US market will continued fueled by a renewed brand.

  4. Improving OpenTable’s applications and websites
    OpenTable has done very little to improve their user interface and features over the last ten years. The feel and look are much the same and there is few new features. For example, OpenTable purchased Foodspotting, an app where people take photos of food at restaurants. After owning Foodspotting for some time, all they have is a few food photos from Foodspotting on a restaurant’s OpenTable.

    OpenTable’s much smaller competitors often have better applications with less bugs. That isn’t to say that OpenTable does not work, but it is years behind, technology and marketing wise. With Priceline, OpenTable will probably have a renewed look and interface, which may provide fresh competition with restaurant websites.

    Other improvement are inevitable. OpenTable’s payment solution will probably be rolled out quicker. OpenTable started testing it in participating San Francisco restaurants in February 2014 through its iPhone app. Essentially, a customer has a credit card attached to their OpenTable account. The convenience of this kind of technology means that if OpenTable doesn’t do it someone else will. Of course the only weak element is that many have not bought into the OpenTable brand even if they use it repeatedly for restaurants (something Priceline will strive to change).

  5. Protect Against TripAdvisor & Other Travel Sites
    Priceline’s acquisition of OpenTable is somewhat defensive.

    TripAdvisor, formerly the sister company of Expedia (Priceline’s rival), has acted on the overlap between travel and restaurants. They purchased the “OpenTable of France,” lafourchette, which has 13,000 restaurants in continental Europe. As the leader in travel advice, TripAdvisor’s website is the optimum time to push restaurants. However, lafourchette has little worldwide reach and TripAdvisor, as a website and not a broker, does not have the network of Priceline nor does laforchette have the jumpstart that OpenTable does.

    Some analyst predict future marriages between restaurant based companies and travel companies. Obviously, there are many cross promotional and cross marketing opportunities, but how it will play out is yet to be seen. These are the first major mergers between the e-commerce-age travel and restaurant sites.

    OpenTable, often described as a natural monopoly, rules the restaurant industry in the United States. With Priceline now calling the shots, this is destined to be the beginning of a new chapter in online restaurant reservation.