Saturday, January 14, 2012

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 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 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 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 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.


Elizabeth @ The Bare Midriff said...

Thanks for sharing this perspective; it's interesting to hear the other side of things.

Julie said...

This was a very interesting read! Thanks for posting!

Marcia said...

Yes, thank you so much for posting this. I read something along these lines a while ago, so when we use a Groupon or similar coupon we always spend more than the coupon is worth.
I'm always able to find something else on the menu to try!

Anonymous said...

Thank You for a very well written explanation. It is nice to read that you're accepting and not bitter of the fact that some people are buying through daily deal sites simply to get a fantastic deal on something they could not otherwise afford. It's certainly a sign of the times that these are so popular when just a few years ago many people wouldn't be caught dead trying to use a coupon in a nice restaurant. My family does tend to splurge on an appetizer or dessert when we're using a groupon and always tip on the full price total. (I hope everyone remembers to do this!) Anyway, I think it's commendable that you were so open about the business side of this.

Greg said...

I'm curious to know how people feel about Living Social? I myself have run both with Groupon and Living Social and found that Living Social's crowd seems to be a lot more generous then Groupon's. I also liked the fact that Living Social seems to be more localized so I get people who actually live in the area. I ran on the Howard County Living Social list and the Baltimore Groupon. When I ran with Groupon the customers seemed more spread out and less likely to return unless another Groupon was bought. With Living Social I have already seen the repeat business from the local people who bought.

Lee said...

Anonymous brings up a good point- the perception of using coupons at restaurants has changed dramatically due to these deal sites. It's not just folks that would clip the penny savers that are buying them; it's everybody! A lot of my friends and family buy them, and you can't fault a person for trying to save money or get a good deal. It's taken a sort of negative connotation away from using coupons, and the businesses that fight it are only hurting themselves. A big part of why these deal sites are thriving is because it gives people a chance to eat out when they otherwise can't afford to (at least as often). I'm happy to give someone a deal on their meal if it means down the road they will come back for a special occasion or when they are in a better position financially.

Greg- We did run on Living Social once and found it to be a good experience. The only issue for us was that we sold twice as many on Groupon so we've stuck with them. I do think you're right about LS being more community driven, which is obviously a good thing. I think there are pros and cons to both companies, and if it wasn't for the 90 day non-compete clause they make you sign we'd probably continue to run on both if we could do so without violating our contract.


Greg said...

Lee- I agree you can sometimes get more volume from Groupon I just wonder if that's a good thing. In my business, the people that return most frequently are local. I also liked the fact that the Living Social rep actually works in MD, so I feel am supporting local jobs at the same time. Groupon is run out of a call center in Chicago and my rep says he doesn't even know this area well. As far as the non-compete...I have run back to back with Living Social and Groupon, and Groupon has never given me problems. My rep actually told me its more as a warning then anything else. Imagine Groupon taking the businesses they promote to court for contract violation for running with a about bad press.

wondergirl said...

I'm an Ellicott City local who has purchased and used Potallis Groupons. My family eats out a lot and we have definitely become more frequent Portallis customers since we used a few Groupons. We are impressed with the improvement in the quality and consistency of the food, drinks and service at Portalls since they've opened, and after purchasing the Groupon we do visit more frequently and we do spend full price. We are happy to do so because we are enjoying a good product at a good value, even at full price.

We also prefer to support local businesses rather than the corporate chain restaurants that dominate the HoCo landscape. Portallis is offering a new Groupon today and I think I'll give it a go for Sunday Brunch as we haven't tried that yet at Portallis. Usually go in the evenings for one of our favorites from the bar menu (Portallis Manhattan, best we've tried in a long time) before dinner - great Martini specials on Friday & Saturday nights!

Just to be clear I have NO affiliation with Portallis, just a happy customer (who is hoping to see some of the same improvements at Diamondback Tavern in the future. Lack of consistency of food and service is something we've noticed and we haven't returned much outside of our Groupon use. And we didn't visit in the busy post-Groupon rush.)

If you tried Portallis in the past and haven't been in a while I'd buy a Groupon and try it again, they are now consistently putting out a great product!

TStout said...

While Groupon markets to *everyone* and Living Social is now marketing to the *communities*- there are other sites engaging niche markets to help local businesses gain qualified, subsequent customers. has a boutique-style daily deal site that engages and inspires local upscale moms to visit and revisit local restaurants!!!