Some individuals have turned reselling dining reservations into a profitable business.
However, it is coming at a cost to both diners, who struggle to secure spots on platforms like Resy, and restaurants, which argue that these people are siphoning away their revenue.
Lawmakers are working to dismantle third-party reservation services – such as Appointment Trader or ResX – that they argue are exploiting the reservation process and creating an unfair system.
Platforms like Resy, owned by American Express, are also working alongside lawmakers and the National Restaurant Association to help “amplify” issues the most in-demand restaurants are facing, Resy CEO Pablo Rivero told FOX Business.
The company said the issue is not unique to only high-end restaurants, but ones that are in high demand.
New York was the first to take action against these services by passing the Restaurant Reservation Anti-Piracy Act.
The legislation bans third parties from selling restaurant reservations without the establishment’s consent. The law went into effect in mid-February, and now California lawmakers are poised to follow suit.
“Especially in New York, we’re just fighting for our lives,” Amy Zhou, executive director of operations at Gracious Hospitality Management, told FOX Business. The management company owns and operates Michelin-starred COTE Korean Steakhouse restaurants in New York City, Miami and Singapore, as well as New York-based cocktail lounge Undercote and fried chicken restaurant Coqodaq.
Zhou said restaurants typically see about 5% to 10% of their books no-show in a single night. In 2023, that jumped to 25% “seemingly overnight,” she said.
Profit margins in the industry range between 5% and 10% when things are going well, so “if a quarter of your book doesn’t show up, that’s almost your entire profits that have just gone down the drain,” Zhou added.
Zhou, who has worked in the business for more than a decade, said people program bots to understand when a restaurant is going to release all of its reservations at the same time.
The moment they are released, the bots take each one with the intention of reselling them for a premium price.
Even though every reservation is taken, not all of them are sold, leaving the restaurant with no-shows, she said. Zhou’s team also discovered that some reservations were being sold that never actually existed.
Another issue is that the people programming bots to snatch reservations for resale often use invalid credit or debit card information to secure the bookings.
As a result, restaurants are unable to collect the no-show fee when they fail to resell the reservations.
Not only did the restaurants notice that 25% of their reservations were suddenly no-shows, they began to see the same name being used repeatedly to book reservations, with different people showing up each time, she said.
Jonas Frey, founder of Appointment Trader, said that he is trying to make reservations accessible to those unfamiliar with how to secure one, though the service comes with a fee.
The platform charges between $80 and $100 for a reservation, with fees exceeding $200 during peak times in New York. Frey takes a 30% commission on non-prepaid reservations and 20% on prepaid ones.
“There are simply more people wanting to dine at some places as there are spots, which is why a market price allocates this scarce resource efficiently,” he said.
Frey said that his platform, which has stopped allowing people to sell and buy reservations in New York, does not lead to no-shows because his system tracks a “sell-through rate.”
If a user uploads more than 10 reservations without selling at least half, their account enters a warning state, and they cannot upload more listings. If sales drop below a quarter, the account is banned.
However, Zhou said the issue was so “egregious” that before New York passed the Restaurant Reservation Anti-Piracy Act, she had to hire additional people to review bookings daily and cancel any reservations suspected to be from bot accounts.
Rivero told FOX Business that less than 2% of the restaurants on its platform are impacted by this issue, but he acknowledged that while the number is relatively small, the issue “has a profound impact on those restaurants.”
Resy established a task force dedicated to help last year, which has already led to a 50% reduction in no-shows caused by bots, Rivero said.
“There’s no way that a human can make 100 reservations within two seconds,” Rivero said. “We’re going to block you, and we’re going to cancel your account.”
Rivero declined to provide details on the company’s behind-the-scenes methods to prevent people from bypassing their measures. However, he shared that the task force developed an automated, scalable process to scan its site every day for such individuals.
Additionally, the company is improving its credit card verification system, which now prevents users from loading the same credit card onto multiple accounts. Rivero said that the company maintains a zero-tolerance policy for these bot accounts.
He added that part of the strategy is to employ a variety of tools and continuously adapt their approach.
“These guys are constantly changing their approach, but we’re trying to stay one step ahead of them to continue to help their restaurants,” he said.
Zhou said the front-of-house staff, including bartenders and servers, are the ones who take the biggest hit from this issue.
“We are commission salespeople. So if we were expecting a certain number of sales to come in, and then those people just didn’t show up, there goes your entire paycheck for the evening,” she said.
Marc Lotenberg, the founder of Dorsia, a members-only platform that collaborates with restaurants, including those in the Gracious Hospitality Management portfolio, advocates for banning bots and reservation resellers, describing them as “a plague on the hospitality industry.”
“These bad actors exploit demand, hoarding reservations and forcing diners to pay outrageous fees – none of which benefit the restaurants or their staff,” Lotenberg said. “When someone drops hundreds or even thousands of dollars just to secure a table, that’s money they’re not spending at the restaurant – on food, drinks or tipping the people who actually make the experience great.”
Dorsia is an authorized platform for securing high-demand reservations. Its business has surged 35% since the law took effect in New York.
Rivero said Resy is in talks with legislators to help restaurants in other states, such as Illinois and Florida.
“There’s definitely a lot of people who want to get behind this, and they want to do the right thing and make sure that, at the end of the day, the playing field is as equitable as possible,” Zhou said.
OpenTable, which supported New York’s bill, is pleased to see California taking similar steps to protect restaurants’ bottom lines. CEO Debby Soo told FOX Business that the company is “happy to see the state take a powerful stance to support its restaurants.”
Like Resy, OpenTable has been investing in tech solutions to help mitigate bots and bad actors. The company has implemented measures such as credit card holds and deposits.
In addition, OpenTable has a global team of internal risk and fraud experts who monitor systems 24/7 to identify and address suspicious activity. The company has also been integrating AI models to further enhance account security.
[Notigroup Newsroom in collaboration with other media outlets, with information from the following sources]
