I’m one of those people that loves a great deal. I search high and low on the internet for the lowest price. I read through the Sunday circulars like a brilliant new novel. So of course when Groupon and all its copycat companies started springing up like tweens at a Justin Beber concert, I was intrigued on what it could do for the restaurant group I work for and it’s outlets.
There seems to be a “Great Debate” raging in the restaurant world about Groupon type coupon sites and is there bottom line true value? The question being is it worthwhile to align yourself with a Groupon style service? What if you have your own destination website site that is already successful with generous discounts? Does Four Wall marketing strategy mixed with eblast awareness garner the same results financially at the end of the day?
Most restaurant owners I have spoken to did not see the value of these coupon sites and will not return to them after one try. Here at my company, Café Metro in New York City, we tried it and were not pleased with the results after we factored in food and paper costs as well as labor.
I spoke to Jerry Jodice a Web Manager and former Ad Man about this very subject since he deals with our restaurant and also several non restaurant groups that have explored coupon sites.
“Obviously, consumers love Social Commerce” Said Jerry, “on the advertising side, I think there are two camps: those that did their homework going in and set their promotion accordingly, and those that didn’t, were caught off guard, and lost money.”
Jerry managed the results of a Groupon deal for a Earth friendly home cleaning product company and he said the results were overwhelmingly positive with growth and repeat business for the company. However, when he helped navigate the deal for Café Metro in NYC, the results were less than stellar.
“Coupon sites are death for most restaurants: let’s say you have a 40-seat Manhattan restaurant and you sell 1,000 Groupons. What happens? You’re not going to be able to service them all on the day they may want to use it, and you’ll almost certainly lose money on every one, especially those who bought two coupons (which is the norm) who will most likely never come back and pay full price once they’ve gotten 50% off their first two meals.”
This argument is validated in some research the Jessie H. Jones Graduate School of Business did in a late 2010 survey. They concluded that restaurants fared the worst in profitability while salons and spas did exceedingly well. Other studies have shown that these are “bargain shoppers” and not loyal customers inclined to return just as Jerry observed.
“Coupon deals are great for advertisers that are scalable (i.e. that can handle ten thousand customers as easily as ten) and who have a business model that will follow up with future promotions and never ask coupon holders to ever pay full price. It also helps to be in a niche market; there are tons of restaurants in Manhattan, so I could buy two coupons from every deal that’s out there and never eat at the same place more than twice. On the other hand, if you sell one-time items like, say, wedding gowns, it makes no sense to run a coupon deal as that customer will never come back, either.”
In every business, competitors look around and see what one another are doing and then do something similar in return. They have to if they’re going to compete. Companies have got to be flexible and take advantage of the opportunities of the moment, and right now coupon sites are “what’s happening” in online sales. However, the coupon landscape is changing daily as we saw this week with Facebook entering the arena.
So my advice to anyone looking to get into it is to have a solid plan before jumping in or else you run the risk of drowning or in the case of restaurants, starving.
Now if you will excuse me I have to go clip some coupons for diapers, Goya Pinto Beans and Oh look…Buy one get one free Turtle Wax! I gotta get some of that!