A couple of years ago, we have heard a new word for the first time: Groupon. This company came seemingly from nowhere and made everything think about local marketing differently. 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 billion in sales mark within two years of its history.
Seth Godin, an exceptional marketing philosopher and the author of many great books on business, says that if others are copying what you've done, you have made something remarkable. By this standard, Groupon is an outstandingly successful corporation that has over 200 copycats in the United States alone and over 500 worldwide.
Andrew Mason, the founder of Groupon, has created a really profitable business model. Groupon sure does know how to generate profits 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 look into how "daily deals" campaigns work.
You offer a number of gift certificates redeemable at your restaurant at a major 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 shared 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 practically put your restaurant on the map. As it sometimes happens, the positives come with quite a few negatives.
This type of heavy couponing is going to bring in "moochers". Many restaurants who have tried the Groupon 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 never take the time to read the terms and try to combine the coupon with other specials or discounts you may have going on that day.
Some restaurant owners commented that these customers tend to not tip a lot or not tip at all and are on a lookout for a "gotcha" even when 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 need 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, must ensure have a plan about how to be profitable and how to get these people to return after their first visit.
Train your staff on how to work with coupon holders. Invite first-time guests to become a member of your newsletter, VIP club, birthday club or other type of customer loyalty program you may have set up. Coach your waiters how to capture guests' contact information table-side. Consider programming your POS system to automatically add 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 very likely to lose money on this marketing campaign, even if some of the coupons don't get claimed. Remember: Each coupon customer that come in puts you further in the red unless you do something special to drive more upsells and repeat sales.
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