About two years ago, a new word was entered out lives: Groupon. This company came seemingly out of nowhere and created an entire new industry. Thousands of coupon junkies are now glued to their computers waiting for the next daily deal to show up that they can share with their friends. Groupon is now arguably the fastest growing company ever promising to reach the $1 billion in sales mark within two years of its history.
Seth Godin, a marketing philosopher and the best-selling author, says that if other people are copying you, you have done something remarkable. By this standard, Groupon is an outstandingly successful company that has over 200 copycats in the United States alone and over 500 worldwide.
Andrew Mason, the founder of Groupon, has created an extremely profitable business model. Groupon sure does know how to make money for themselves.
The big question is, does it or does it not make sense for your restaurant to participate in the “daily deals” campaigns?
Let’s take a look at how “daily deals” campaigns work.
You offer a number of gift certificates redeemable at your restaurant at a significant discount (usually around 50%). The offer is valid only if the target number of certificates sold has been reached. The money your campaign generates is then split between you and the vendor (Groupon or one of their competitors).
An offer like this is designed to bring in a lot of first-time guests who have never heard of and have never visited your restaurant before. Such a campaign can literally put your restaurant business on the map.
As it is usually the case, the positives come with quite a few negatives.
This type of heavy couponing is going to bring in price-conscious customers. Many restaurants who have tried the daily-deals style of marketing report that the guests who show up with a coupon in their hand tend not to buy beyond what the coupon offers. Many don’t bother to read the terms and try to combine the coupon with other deals or discounts you may have going on that day.
Several restaurant owners commented that these guests tend to not tip a lot or not tip at all and are on a lookout for a “gotcha” even though you offer the same food and level of service as you do to non-coupon guests. What’s worse, few of these guests end up coming again.
When you plan a marketing campaign around a daily deal, you have to be prepared. Yes it’s nice to have a lot of new guests to come in and discover your restaurant for the first time. You, however, need to make sure you know how to make money and how to bring these people again after their first visit.
Train your staff on how to work with coupon holders. Add first-time guests to your newsletter, VIP club, birthday club or other type of customer loyalty program you may have in place. Teach your waiters how to capture guests’ contact details table-side. Consider programming your POS system to automatically include the tip into the check.
Offer Groupon deals only on days and hours when your restaurant is slow and only on the items that offer you a high profit contribution margin. Your food cost is probably anywhere from 28 to 36% of the menu price. Given that you only get 25% of the value from Groupon, you are almost guaranteed to lose money on this marketing campaign, even if some of the coupons do not get redeemed.
Remember: Each coupon customer walking in door puts you further in the red unless you do something to drive more add-on and repeat sales.
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Watch this quick video about how to set up a Birthday Club that practically runs on an auto-pilot. This is going to be the easiest, fastest money you will ever create in you restaurant business.
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Thanks, Alex, very comprising article and you’re very right about the daily deals. I agree that it’s not very good business because the this kind of customers are not the ones I want in my restaurant.
Thx,
Alex
Groupon also charge 50% fees which is kind of too much cost. For test water of these type of site, you can try to post your promotion to Social Deal Map (http://www.socialdealmap.com) which is free.
I’ve gone ahead and bookmarked http://restaurantcommando.com/restaurant-marketing/restaurant-marketing-to-groupon-on-not-to-groupon at Digg.com so my friends can see it too. I simply used Restaurant Marketing: To Groupon or not to Groupon? | Restaurant Commando as the entry title in my Digg.com bookmark, as I figured if it is good enough for you to title your blog post that way, then you probably would like to see it bookmarked the same way.
To Groupon or not is really a math problem. You have to know your true costs and what the profit will be. Do the math and the answer will be clear. Groupon works best for service businesses like Spas and Massage Therapists. Their only ‘costs’ are labor costs. For restaurants, you have labor costs PLUS food costs, so you’ll never make it up in volume.