June 11 (Bloomberg) -- Darren Wolfberg, a stock trader in New York, needed an impressive restaurant for a client dinner. To snag a table at Miss Lily’s, a hip Jamaican eatery in the Village, he paid a fee to have someone else get one for him.
Wolfberg, who forked over $20 to a reservation site called Zurvu, didn’t relish the idea of paying for something that’s typically free. But in the tight market for the hottest places in town, the 38-year-old said the extra cost is no big deal.
“When you want to go to a good restaurant, that is the kind of premium you have to pay sometimes,” Wolfberg said.
That attitude is fueling a wave of new startups focused on making money from restaurant reservations. Zurvu, Killer Rezzy and other sites are going beyond the territory staked out by OpenTable Inc., which is free to diners. The companies are selling bookings a la carte and often share revenue with the establishments, aiming to create a new industry in places like New York and the Hamptons.
For restaurants, the approach brings risks and opportunities. In cases where startups share some of the reservation fee, it represents a new source of revenue. Paid bookings also can help avoid no-show diners. Restaurants are wary, though, of encouraging scalpers -- the bane of sports events and music concerts.
While fashionable restaurants in New York, Los Angeles and other foodie towns are thriving, the broader industry could use a boost. Table-service restaurant sales will rise 0.2 percent to $212.4 billion this year, the National Restaurant Association forecasts, much slower than the growth rate for quick-service eateries.
The rise of paid reservation websites stems from the success of OpenTable, which has let people book tables at restaurants for about 15 years. A third of American adults have now made a reservation on the Internet, according to the restaurant association. That acceptance -- combined with the free-spending ways of diners in New York and other top restaurant towns -- has convinced startups that they can make money from the process.
“There are hundreds of thousands of individuals in New York who live in a premium product economy,” said Sasha Tcherevkoff, a 40-year-old former restaurateur who founded Killer Rezzy. “They want a product and they don’t mind paying a premium to get that conveniently.”
Zurvu -- a play on the words “reserve you” and “serve you” -- was started in February by David Levin, a 42-year-old former partner in a company that managed social media for consumer-products companies. It charges $5 a head, which is divided evenly between the site and the restaurant after one dollar is donated to the food charity Wholesome Wave. It has partnerships with about 55 eateries, including Gotham Bar and Grill and Rouge Tomate, and won’t disclose the size of its membership.
Tcherevkoff’s Killer Rezzy started selling reservations in April at $25 each. It’s working to expand its list of nine partner restaurants, which split the fee revenue 50-50 with the startup. The company also secures tables at about 40 other places at the specific requests of its clients, who currently number fewer than 1,000. Restaurants on the site include the Waverly Inn and Carbone.
“A lot of restaurants have serious trepidation about this concept and some of them are dipping their toes in the water with us,” Tcherevkoff said.
Food for All
The nascent market has already seen some stumbles. Food for All, a site that built a catalog of reservations and posted available bookings on Sundays for the following week, suspended the service in recent days because it couldn’t persuade restaurants to cooperate.
“We feel that without partnering with the restaurants themselves, it is not fair to sell their reservations,” Food for All said in a statement on its website. The startup, which didn’t respond to requests for interviews, pledged to return with a new business model that restaurants would be excited about.
One site that got a head start on the market was Today’s Epicure, which debuted in 2010. It charges diners an annual subscription of $1,000, plus supplemental fees for bookings. Founder Pascal Riffaud said in an e-mail that he operates the site as a concierge service and doesn’t share revenue with restaurants.
Many diners, meanwhile, are finding other ways to snag reservations. One option is the iPhone app Shout, which lets users buy and sell bookings among themselves. There also are restaurant trackers on social media and blogs that help diners find available spots.
The idea for Zurvu came to Levin when he and his wife went to a restaurant in Manhattan and were told no table would be available before 11 p.m.
“It started us thinking that there are people who are not going to show up for their reservation,” Levin said. “The issue of no-shows is something we can do something about.”
The problem has been exacerbated by online reservations because diners feel less committed to them, Levin said. A group of friends may make several reservations and then agree on one at the last minute, he said. That’s why restaurants should embrace services like Zurvu, which encourage people to honor a commitment, Levin said.
OpenTable requires restaurants to bear the cost of its system, which isn’t ideal for them, Killer Rezzy’s Tcherevkoff said. That was a problem he set out to address: turning “the cost center of reservations into a revenue center for restaurants,” Tcherevkoff said.
Wylie Dufresne, chef and owner of wd-50 and Alder in New York, teamed up with Zurvu in part because there’s no cost for him. The 44-year-old was familiar with the general concept after using the movie-ticket seller Fandango, and the fee charged to diners doesn’t seem onerous, Dufresne said.
Another motivation: combating no-shows, which one night numbered 30 at his 54-seat Alder. He feels customers who skip out on a reservation should be willing to pay the same kind of penalties they would at the dentist or the spa.
“That’s a lot of food we’ve ordered for people who don’t show up,” said Dufresne, who announced this week that he’s closing wd-50 on Nov. 30. “We’re dealing with perishables.”
Levin envisages expanding Zurvu into Washington, D.C., Boston, Texas, Chicago and then the West Coast. Killer Rezzy plans to roll out in Paris, London and San Francisco by the end of the summer, Tcherevkoff said.
OpenTable, meanwhile, is developing a free service called Hot Tables that alerts diners when coveted restaurants have a spot available, said Tiffany Fox, a spokeswoman for the San Francisco-based company. If a diner fails to show up four times, OpenTable bans them for life, she said.
Killer Rezzy’s approach does have a potentially awkward consequence: checking into a restaurant using someone else’s name. When the startup has a reservation that a customer doesn’t end up needing, it offers the booking on its website. The buyer of that spot then has to use the original person’s name.
This isn’t the same as reservation scalping, Tcherevkoff said.
“Reservations scalping is a pretty ugly word for us and is one we take quite seriously,” he said. “We never book a reservation in a fake name and we never book a reservation without a go-ahead and a need from a member.”
Killer Rezzy’s members agree to its terms and behave appropriately, Tcherevkoff said. That means there’s no walking out on checks in other people’s names, he said.
At Zurvu, the reservations are made with the members’ own names, along with the last four digits of their credit card, Levin said. The restaurant can use that to verify the reservation hasn’t been scalped. Zurvu also screens applicants for potential scalpers.
For users, being able to secure the table itself is the biggest concern. Mina Radhakrishnan, a 32-year-old software product manager from San Francisco, used Zurvu to get a spot at Dirt Candy in New York. After two months of trying on her own, she didn’t mind a fee.
“For me it is a question of time over money,” she said.