Greg Hong, cofounder of app startup Reserve, has a simple proposition for restaurants and eaters, alike:Avoid the complicated business that often comes with human interactions, and reserve and pay for your meal through an app, instead. Like Seamless, for dining out.
The company, which currently operates in New York, Los Angeles, Boston, and–as of earlier this month–San Francisco, equips restaurants with custom iPads and POS integration that handle payment for meals electronically. According to Reserve, that means happier diners and faster table turnover for restaurants.
It also places Reserve into an incredibly crowded marketplace. A rival app called Cover, which scored $5.5 million in Series A funding last summer, offers pay-by-app services to diners, and the restaurant reservation market is largely dominated by OpenTable. Online restaurant delivery in the United States is dominated by two firms, Seamless/Grubhub and Eat24. Reserve, then, is entering into a saturated market with notoriously fickle customers and restaurateurs.
But the startup has a secret weapon. Reserve is the first launch from Expa, an incubator (billed as a “startup studio”) helmed by Uber cofounder Garrett Camp and Foursquare cofounder Naveen Selvadurai. Expa’s portfolio currently includes three companies: Uber, Reserve, and a shadowy product called Operator. The incubator has some prominent investors as well: Sir Richard Branson, Meg Whitman, author Tim Ferriss, Google board member Ram Shriram, and TPG’s David Bonderman are all on board. In press materials, Expa asserts they have identified “many techniques that help create successful companies. This experience has been integrated into a platform that will increase a startup’s chance of success.”
And the first challenge for Reserve is selling restaurants on their vision.
Diners use Reserve by downloading an app, currently iOS only, to their phone. This app allows users to make a reservation at a restaurant–Reserve’s listings skew heavily toward the trendy and in-demand urban dining destinations–and makes money by charging diners a $5 fee. When a user goes through the app for the first time, they set a default tip amount as well (typically 20%, Hong says). The app then books the diner and their party a reservation at the restaurant of their choice, much like OpenTable does.
The biggest difference comes when diners arrive at the restaurant. Hong describes Reserve as a “Seamless or Grubhub for inside the restaurant.” Upon signing up with Reserve, restaurants are supplied with an iPad featuring a proprietary app. Servers enter the diner’s meal information into the iPad, and then manually enter information into their POS (point-of-sale) system.
At the end of the meal, instead of handing a server a credit card, diners can simply walk out. Hong explained that when speaking to restaurants, his company emphasizes the fact that servers typically walk to a table three times for a credit card transaction–once to bring the bill, once to pick the bill up, and another to return the card–and that using Reserve frees up staff and turns over tables more quickly. Restaurants also know in advance which parties are using Reserve; eaters are unable to claim “I’m using Reserve” for a quick dine-and-dash.
Offering pay-through-app capabilities to restaurants and bars is a natural idea for startups. Handling payment is one of the biggest choke points for the hospitality industry, and slow waitstaff account for a significant amount of angry Yelp reviews. But the restaurant industry is an incredibly hard one to build a sustainable startup in–restaurant owners are legendarily mercurial and diners are slow to adopt new services unless there’s an obvious selling point.
One of the secrets about OpenTable’s success that many diners may not be aware of, is that OpenTable functions as a complete front-of-house management service for restaurants. The company turns a profit by offering restaurants systems that track diners waiting for tables, table flow, customers (who has food allergies, diners’ birthdays, who the “VIP”s are), and other factors. At this point, it seems Reserve isn’t competing with that. Rather, the company is outflanking OpenTable by combining Uber-style effortless payment with restaurant bookings.
It’s a smart move on the part of both Reserve and rival Cover; both companies are offering a service which will require significant investment by OpenTable and other parties to imitate. Although there’s no shortage of diners in New York, Las Vegas, Miami, and other destinations who will gladly pay $5 for instant payment, that monetization model might be problematic in smaller markets.
More importantly, Reserve will have to sell restaurants on using a proprietary iPad app and on a new method of handling payments. There are, however, incentives for restaurants: The app automatically charges a $10-$25 “no-show fee” to would-be diners who, well, don’t show.
As of this writing, participating restaurants on Reserve include M. Wells Steakhouse and Carbone in New York, Bestia and Lucques in Los Angeles, and Foreign Cinema in San Francisco. The company says there are plans to expand to other cities and restaurants in the coming months, though they won’t yet reveal where.