Chicago Sun-Times – July 2, 2003

Restaurant.com finds right recipe for online success

BY SANDRA GUY SUN-TIMES COLUMNIST

Steve Savad (left), Scott Lutwak (center) and Cary Chessick have managed to resurrect their company, Restaurant.com, and see it turn a profit – no easy task for an Internet company.

After surviving a near-death experience, an Arlington Heights-based dot-com is thriving by offering consumers online gift certificates for restaurant meals nationwide.

Restaurant.com, which hired all of its 25 employees in the past month, is now expanding its portfolio: It has just started offering restaurateurs the machinery and materials to produce electronic gift cards at the cash register.

Restaurant.com is one of six companies featured in the May issue of Business 2.0 magazine as examples of how businesses can make money on the Internet.

Two of Restaurant.com's key players are Northbrook natives who became best friends in the sixth grade and were sparring partners on the Glenbrook North High School wrestling team.

"This is a great home for the business," said Cary Chessick, Restaurant.com's president and general counsel. "We grew up here. It's home."

Chessick and his boyhood friend, Scott Lutwak, the CEO, both 37, endured an excruciating journey before they and the third founder, Steve Savad, 36, discovered a profitable niche. They are among a few surviving online marketers such as iDine Rewards Network, DinnerBroker and OpenTable Inc.

Lutwak met Savad 14 years ago when the two argued over which one was entitled to a bed in a youth hostel in Istanbul, Turkey. At the time, the two were traveling throughout Europe, enjoying free-spirited adventures.

Ten years later, the three men--Chessick with a law degree, Lutwak working at an import-export business in Houston, and Savad working as an investment banker--started their dot-com by partnering with Sysco, the nation's largest food-service company.

The three founders raised a whopping $7.25 million from their friends and family, avoiding the riskier alternative of selling out to venture capitalists.

Their business plan: Build Web sites for restaurant operators. The operators would pay $1,200 yearly subscriptions to Restaurant.com to host the sites, track Web hits and handle online promotions.

The plan failed. The company had no way to distinguish itself from a burgeoning number of rivals, and restauranteurs remained unconvinced that online advertising would result in sales.

By November 2000, Restaurant.com had shut down and fired its sales people.

But the three founders refused to give up.

"It was no longer a job," said Chessick. "This was our life. No matter what happened, we weren't filing bankruptcies. We decided we would go back to regular jobs and do this at night if we had to."

While the company limped along, conserving the little cash left, the founders spied CitySpree, a bankrupt dot-com that had sold or auctioned off gift certificates for restaurant meals, bowling alleys and flower shops.

The downsized Restaurant.com bought CitySpree in January 2001 and siphoned off its best concept--cash-free marketing for restaurants in exchange for gift certificates.

"By February, while my family was on vacation, my experience had turned into a gut-wrench of staying up all night to rewrite the business plan for Restaurant.com," said Chessick. "I pulled three all-nighters in a row. We were on our last fume; it was a pure roll of the dice to see if it would work."

The long shot worked. In March 2001, Restaurant.com landed a contract with eBay that gives the company national billing on eBay's home page.

Under the new model, Restaurant.com builds Web sites for restaurant owners cash-free.

Restaurant.com generates revenue from the gift certificates it generates for its client restaurants. People buy the gift certificates at a discount at Restaurant.com or bid for a certificate on eBay's auction system.

The certificates typically have a $25 face value and are sold for half-price. Each restaurant chooses how many gift certificates it will honor on any given day.

After a Web surfer pays for a gift certificate, he receives it via e-mail. He prints it out and redeems it at the restaurant.

Restaurant.com has become a "power seller" on eBay because of the high volume of positive comments people post about it, and it turned its first profit in November 2002.

Restaurant.com tallied $3 million in revenue last year and is projecting $7 million this year.

Under its new gift-card program, Restaurant.com will create gift certificates with magnetic strips, much like today's debit cards, for each of its restaurant Web clients. Restaurant.com will make the cards with the restaurant's name and logo on them.

Thomas Keating, general manager of Platiyo, an upscale Mexican restaurant at 3313 N. Clark, said the eatery gets 10 to 15 Restaurant.com gift certificates on weekends and two to four each weeknight.

"I see lots of people giving the gift certificates as graduation presents or for employee rewards," Keating said. "It is driving traffic."