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Demand Management Provides a Business Model

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As a start-up it can be tough to know when you'll get customers, how many you'll get, and when they'll show up. These problem plagues larger businesses as well, and one start-up just launched a service aimed at increasing business during slack times at restaurants.

We're talking about what economists might call demand management. You might recognize the concept if you've used Priceline or a similar service to get a travel service at a discount. If a hotel room goes empty, there's no possible revenue for that night, and the money unused airplane seats flies away with each flight. These businesses use services to offer their inventory at a discount to recoup an acceptable amount of revenue.

In the same way, an empty table at a restaurant is a wasted opportunity. The restaurant has wait staff, chefs and bartenders waiting to serve customers. Enter Village Vines, which enables customers to receive preferred pricing at top restaurants in New York, Los Angeles, Chicago, San Francisco and Washington, D.C., with more cities to come. A customer pays Village Vines $10 for a reservation to get a spot at a top restaurant like Devi or Artisanal in New York at a discount.

For the restaurateur, 'We had nothing to lose by trying the service,' said Carolyn Thalin, Director of Marketing at world-famous LeCirque, which launched a month and a half ago with Village Vines. 'We can select the times for reservations. Every restaurant is going to have slower times, so we can offer earlier or later dinners and seat tables that may not be guaranteed to be filled on a regular evening.'

For Village Vines founders Ben McKean and Daniel Leahy, the business grew out of their own observations while eating late meals after long days working on Wall Street.  Said McKean, 'Dan and I were both working in finance and on Internet deals. We started asking waiters and managers what their pain points were. The restaurants in the financial district would be packed Monday to Thursday, and Fri and Sat they'd be dead. They'd be full earlier, but by the time we'd leave work late, we were looking at open tables around us, and we saw the opportunity.' Leahy added 'We found the restaurant industry was not really marketing effectively online. Once we sat down with owners and mangers, we learned what they needed, and this enabled us to create a prototype and sell to other restaurants.'

The pair raised money from friends and family and to build their prototype. They found that having a working site, even a rudimentary one, was essential to selling the restaurants on participating. They also surrounded themselves with advisors who had created Internet service companies so they could get help when they needed to hire developers, designers and in other areas where they had less experience.

Are restaurants getting value out of the partnership?  'The good thing about Village Vines is it's a group, so you have to pay them to be part of it. The audience is, from our perspective, a lot of business people who eat at higher end restaurants and can be repeat customers,' said Le Cirque's Thalin.

Village Vines has partnered with MenuPages.com so visitors to that site can be offered Village Vine membership and deals.

McKean added  'The one big lesson we learned is to think against the grain. In this competitive space, Groupon and Living Social decided to partner with consumers to get massive deals from businesses. We decided to partner with the merchant. Someplace like Dinosaur BBQ wouldn't do a Groupon-type offer as they'd be full all year without any control. They want X number of tables full at certain times, and to do that they're willing to offer a discount.' The pair add that they're on track to be cash flow positive, but their expansion to new cities has delayed that for a few months.

How can your business use this concept to manage the flow of customers? Let us know in the comments.

For more about this subject, I covered demand in March 2009's When Customers Supply Your Demand.

If you're not already following @HowardGR on Twitter this is a great time to do so – I've got some good stuff going on as well as links for small business resources regularly.

Last updated: Sep 17, 2010




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