Coupon Sites II: The Restaurant View Of Groupon

This morning, I posted my question about how people use Groupon, Living Social and other coupon sites in a way that makes the experience fun.

I had been soured by fine print that surprised me.  I was wondering what people thought.  You should probably start with that post and the comments.  I learned a fact and two strategies from the comments.  Fact: You can redeem some coupons for your purchase price even after the promotional piece expires.  I didn't know.  First strategy:  Buy a bunch of coupons and just expect that you'll have some great dinners and some not-so-great.  Second strategy:  Think of these deals as exchanging money for flexibility.

I also got an email from Lee Biars, one of the owners of Portalli's and the Diamondback Tavern in Ellicott City.  He said he started a comment and it expanded into the longest thing that he has written in probably 10 years.  He explains the coupon sites and the thoughts from the restaurant's point of view:

A great topic and some great comments here. As a restaurant owner, I'd like to shed some light on our side of things and why certain things are the way they are with these deals. I am part owner of both The Diamondback Tavern and Portalli's, both in historic Ellicott City. We immediately recognized the marketing value these deals provided our places and we got in on the ground floor and ran features on Groupon within a couple months of them bringing their deals to the Baltimore area. For that reason, they've been very loyal to us, as we are to them, and we've probably run more Groupon deals than any restaurant in HoCo and possibly Maryland. Having said that, there are definite drawbacks to these deals and a restaurant needs to be very careful that they don't shoot themselves in the foot (most will the first time they run one of these features). 

You have to understand, it takes a big leap of faith for a business to sell a gift a certificate to their establishment for 25% of face value. That's essentially what we're doing with these deals because we split the revenue with Groupon for each deal sold. So if you buy a $40 for $20, the restaurant usually only gets $10. Since most restaurants try to run at a 25-35% food cost, you're looking at a break even scenario AT BEST for anything that the deal covers. So the success of these deals hinges on the establishment being able to 1) Sell additional items at full price, or 2) Turning the guest into a repeat customer that comes back and pays full price. If neither of these two things occur, the restaurant is shooting itself in the foot. Five years ago, if you would've asked a restaurateur if they would be willing to sell their gift certificates to you at 75% off you probably would have been removed from the premises. But with a cluttered marketplace and struggling economy, businesses are forced to get creative and figure out different ways to get guests in the door. 

On top of all that, restaurants generally get slammed for the first two weeks after a feature runs. This means we're completely booked on Friday and Saturday, and probably most other days as well. So when customer A calls and makes a reservation for 4 and they have a Groupon, we put it in the books. When customer B with no Groupon calls later and wants to make a reservation but we don't have a spot open for them, we have to turn away business at full price in order to accommodate a guest that's eating at 75% off. We understand this sacrifice and it's one we're willing to make, but when you see certain conditions on a deal such as 'weekdays only' or 'dinner only' (we choose NOT to implement these conditions on our deals), it's because the restaurant is making an attempt to funnel the business to where it makes the most sense for them. Jim makes a great point above where he says that nitpicking over the fine print contradicts the reason a business would run such a deal. 

On top of that, you will have many deal purchasers that will only come in if they have a Groupon, and only spend the bare minimum that the deal covers (meaning nothing at full price). This is certainly fine and expected when you run a deal, but understand that the restaurant is not making any money off these guests besides the word of mouth marketing that occurs if they enjoy themselves. While that is certainly important, if you walked into any restaurant in the country and said 'I'd like to get my meal at your cost and in return I'll tell 5 of my friends if I have a good time', they would politely  (or not so politely) decline this proposal. 

Let's now focus on the positives from the restaurant end:  

1) Marketing: as the director of marketing for both of our places, I can honestly say Groupon has worked out very well for us. While many people who live in HoCo know about one or both of our restaurants, many people in Baltimore, Towson, DC, etc..., would never cross paths with our name. So when Groupon sends out their blast email to hundreds of thousands (maybe millions?) of MD residents with our name and a description of our place, this is huge for us. Do you know how much money you'd need to spend on radio or TV ads to reach this type of audience? So our feeling is that even if people see the deal and don't buy it, we still get something out of it in terms of getting our name out there just like we would with a TV or radio ad. 

2) Gives us a chance to prove ourselves: Most diners would be willing to return to a place where they enjoyed everything, regardless of whether they have a coupon or not. This means if the restaurant executes, they have a good chance at winning repeat business. If we sell 1000 deals (meaning 1000 new parties over the next year), and just 10% become repeat customers, we just earned ourselves 100 new tables (300 or so diners) in the future that wouldn't have come in otherwise. Obviously we hope to earn a higher percentage, but even a number as low as 10% would qualify as a success.  

3) Any Groupons that go unredeemed are essentially free money: pretty self-explanatory. I like that they now say businesses need to honor at least the purchase price, since it's technically illegal in many states for gift certificates to expire (and that's technically what's being purchased), the purchaser should at least be entitled to the amount they originally spent in credit. We usually offer a grace period of a month after the expiration where guests can get the full value on their Groupon, we just need a manager to ok it to the server.  

There are other positives, but these are the three biggees. As a side note, while restaurant.com operates in a similar fashion on the consumer side of it, it's VASTLY different from the restaurant's perspective. First and foremost, the restaurant gets nothing from the sale of a rest.com certificate. Zero. On top of that, they will often sell vouchers at ridiculously low rates like $1-$4 for a $30 certificate. Why wouldn't they? It's all profit to them and they don't have to offer a good or service in return. So not only are they not sharing the revenue, they also are devaluing our product by giving it away for next to nothing. If you buy two similar watches, one for $100 and one for $2, which are you going to take better care of? We ran on rest.com for the first 6 months of our opening at Diamondback but stopped when we realized it wasn't working out for us financially. We still honored rest.com certificates 6 months after their expiration so there wouldn't be any ill will from people that had bought them. After that point we had to stop honoring them; we just can't let them go on forever. Every now and then we have one come through the doors, but they're over 3 years old at this point and most people will understand we can no longer honor them. 

So anyway, this concludes my dissertation on daily deals from our side of things. I love getting feedback and reading comments about this stuff because it helps give us ideas as to how we can tweak these deals to a point where it makes sense for both us and our guests. We're happy to offer them when Groupon will allow us, and hopefully someone reads this and gives us a shot if they see our feature running (hint- early February). Lastly, here's an insider tip: it's wise to wait a couple weeks after purchase to redeem a deal. The restaurant will be a lot less crowded, better staffed, will have adjusted to the parameters of the deal, and your exprience will most likely be improved.