Davis startup RezKu has no reservations about challenging OpenTable

04/06/2014 12:00 AM

04/06/2014 9:49 AM

Three men huddled at the hostess podium inside Crawdad’s River Cantina on a mid-March morning, their eyes riveted on a 20-inch multitouch screen displaying an image that mirrored the restaurant’s seating layout. Here was the outside deck. With a finger swipe on the screen, the dining room materialized. A tap produced the evening’s reservations list.

The monitor – with keyboard and wireless mouse – was part of a new online reservations and table-management system from Davis-based startup RezKu, which launched in February. The system had been installed at the newly renovated Crawdad’s the day before. Crawdad’s 2.0 would have a soft opening that night and debut the next day, so RezKu’s Paul Katsch and Senica Gonzalez were going over any last-minute details with Crawdad’s co-owner Trevor Shults.

Katsch, who calls himself “an entrepreneur to the core,” is the impassioned CEO of DinnerWire, a 2-year-old social-media site for foodies and the parent company of RezKu. Gonzalez is RezKu’s chief engineer. The energetic Shults partnered with veteran chef Adam Pechal to re-open Crawdad’s last month, and also operates BarWest, Pour House and two nightclubs.

With RezKu, Shults’ front-of-house team can manage online and phone reservations, arrange tables, assign servers, take notes on guests’ personal preferences (a customizable feature that lists food allergies, wine preferences and the like), check wait-lists and table-turnover times, and more. RezKu also offers an optional text-messaging system that confirms guests’ reservations and notifies them that their tables are ready if they’re waiting after they arrive.

For Shults, contracting with RezKu was merely part of readying his new cantina for prime time. For Katsch, however, the installation perhaps took on a larger significance – another early step in a long quest to change the way the thousands of restaurants do business in the digital age.

Katsch won’t say how many Sacramento-area restaurants have signed up for RezKu so far, but mentioned Mikuni and Farrell’s Ice Cream Parlour among them. His ultimate goal is to take the business nationally and then globally. He and his team of nine have compiled a database of 300,000 restaurants in preparation for that.

“Over 1,000 people a day are using RezKu, and we expect that to rise to 10,000 a day as we enlist more restaurants,” he said.

Growth means RezKu will have to confront the Godzilla of the online-reservation/table-management business, OpenTable, which continues to gobble up most of its competitors and related businesses. They include Foodspotting, where foodies upload color photos of restaurant dishes; Ness, where users post restaurant recommendations; and former chief rival RezBook, from Urbanspoon. The industry is holding its breath to see what happens to CityEats (in partnership with the Food Network), which launched in 2011 to go head-to-head with OpenTable and is now up for sale.

“We’re a niche for (restaurants) that don’t want to do business with OpenTable for whatever reason, or who don’t want to use an iPad-based system,” Katsch said.

Why did Shults choose RezKu? “In the restaurant business, you live or die by your hostess,” he said. “So it’s very important for our front-of-house (staff) to have a system that controls the dining room. I worked with OpenTable for a long time with the Paragary restaurant group. It’s a good system, but I feel RezKu meets the demands of newer users, and it’s very affordable. I’ll be adding two more systems to (his nightclubs) Social and Vanguard.”

Costs passed on to diners

Most diners don’t care about the behind-the-scenes dynamics of online-reservations companies and how they interface with restaurant clients. Consumer interest in this kind of technology is usually limited to making quick restaurant reservations 24/7 (on mobile or desktop) and getting dollars-off dining coupons. What they don’t know is that many restaurants pass on some of their reservations-systems costs to those same diners who use them.

But no story about this evolving sector of the food business – or the startups in this space looking to challenge the status quo – can be told without an understanding of OpenTable.

Diners may be unaware of the staggering success of OpenTable, which launched in 1998 and essentially has had a lock on the online-reservations segment ever since. Its market valuation is $1.9 billion, it has more than 31,000 global clients and 575 million “verified” diners, and it claims to seat 14 million diners worldwide each month.

Impressive stats for sure, with the numbers suggesting at least a modicum of satisfaction with restaurant owners and diners. However, a long-simmering feeling with some restaurateurs is that OpenTable’s pricing structure is complicated and too expensive, but its massive market share makes it difficult to leave.

“I like the type of diners who are on OpenTable,” said Josh Nelson, chief financial officer for the Selland Family Restaurants group, which includes the fine-dining landmark Ella, “the No. 1 booked restaurant in Sacramento on OpenTable.” It’s a designation that adds up, Nelson said, as Ella pays OpenTable for every online reservation (there were 1,900 in February).

“It starts to feel real expensive,” Nelson said.

“The average monthly revenue for OpenTable is $600 per month per restaurant,” said an Open Table spokesperson in an email, emphasizing that the “average revenue for the restaurant per seated OpenTable diner is $42.50.”

Its installation fee for a terminal and table-management software is from “$200 to $700, depending on complexity and location. Our most popular subscription bundle is $249 a month,” the spokesperson said. The cover fee “for reservations booked through restaurants’ own websites is 25 cents; it’s $1 for reservations booked through OpenTable and its network (of 600-plus ‘partner’ websites such as Zagat).”

There’s also a $7.50-per-diner charge for an optional program “used to help fill seats during off-peak times and/or days,” the spokesperson said. That’s in addition to a Dining Rewards Program in which guests earn “points” they redeem for “Dining Cheques” that can be used at any OpenTable restaurant – even if the diner earned the points at other restaurants.

The bottom line for many restaurants is a monthly bill that can range from a few hundred dollars to $2,000-plus. Not knowing what the exact figure will be is one source of frustration for subscribers, restaurateurs say. Another is the feeling that OpenTable markets itself through its members’ websites. This sort of sentiment is opening the door for companies such as RezKu.

“OpenTable does a lot of things right, but some things are very inconvenient,” Nelson said. “Their bill varies from month to month, and it’s hard not knowing (what it will be). There are a lot of modules for which OpenTable charges fees. I asked them to send all of them to me because I didn’t know about a lot of the things they do, and I’ve been with them for seven years.”

Nelson said he will likely switch Ella to RezKu when his OpenTable contract expires. “Paul Katsch has clearly built a better mousetrap,” he said. “OpenTable’s ship is going in a certain direction, and technology and the industry are going in a different direction. Restaurants are going to figure that out.”

Problem-solving gene

RezKu isn’t the only alternative to OpenTable, but it’s gaining notice, especially in its home market.

Credit that to Katsch, the company’s restless leader. He’s 49, has a degree in genetics from UC Davis, and has owned 25 technology companies since starting his first one at age 16. “But the gene I really have is the one for problem-solving,” he said. “I see things other people don’t see.”

The RezKu story began when Katsch couldn’t afford OpenTable for his restaurant in Virginia, which he co-owned from 2008 to 2012. So he made his own “solution” based on iPad technology. He tried selling it to other restaurants but “nobody wanted it,” he recalled.

“After so much rejection, I asked the question, ‘What do restaurant owners want?’ I traveled the nation and talked with hundreds of people. The average restaurateur is not tech-savvy and wants something simple that does the job. I thought, ‘What if I could produce that product at a fair price?’ ”

Katsch and his “techno-prodigy” nephew, Theron Luhn, began work on RezKu two years ago.

RezKu charges its members a $350 installation fee for the hardware and a $300 per month flat rate for the service (with a three-year contract). As Katsch emphasizes, there are “no surprises on your bill. If something happens, we take care of it.”

Unlike OpenTable, RezKu does not bill its members a “cover charge” for reservations made on the restaurants’ websites or through its sister social-media site DinnerWire.

Comparisons between RezKu and OpenTable are inevitable, of course, as the latter helped define the online-reservations template. Both companies provide table-management hardware and service. But beyond that, it becomes a bit of apples and oranges.

RezKu is a business service for restaurants (for example, diners don’t make reservations at RezKu.com). OpenTable, on the other hand, has many functions. Beyond booking reservations, OpenTable’s diners can write reviews, post photos, give feedback to restaurants, read blogs and news of upcoming events, and learn of specials at member restaurants, among other things – features that Katsch hopes to grow on his still-nascent DinnerWire, where online reservations can be made.

Incanto vs. OpenTable

While RezKu’s ability to challenge OpenTable’s dominance is far from being determined, it’s clear that the tech world loves nothing more than the disruption of established power structures.

However, sometimes disruption arrives in ways that surprise all industry players – both big and small.

Mark Pastore of the four-star Incanto in San Francisco is still famously known for the letter he posted on his restaurant’s website in 2010, titled “Is OpenTable Worth It?” It was the culmination of nine years of turning down OpenTable’s overtures of partnership.

His letter is partly based on conversations with colleagues who used the OpenTable system. In part, he wrote, “The recurring themes (included) the feeling of being trapped in the service; it was too expensive to keep, but letting it go could be harmful.”

Before opening Incanto in 2001, Pastore worked at Sun Microsystems, Tumbleweed Communications and other high-tech companies. On the phone recently, he said, “OpenTable has real value, but it has gone from being a simple tool that restaurants used to increase their relationships with their diners, to being a destination in and of itself.

“Restaurants give OpenTable their brands and pay for the privilege. In a logical world, OpenTable would pay the restaurants to have access to their brands.”

On the Incanto website, Pastore gave his customers two options to make reservations: Call the restaurant and speak with a person, or click on a link to an online reservation system.

“The first system we used was GuestBridge, but OpenTable bought it,” Pastore said. “We switched to RezBook, but OpenTable bought it.”

What’s his next move?

“We’re closing Incanto and reopening as a much less formal restaurant called Porcellino,” he said. “We’re not going to take reservations at all.”

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