Groupon in the restaurant business (best practices)

A couple of years ago, we heard a new word for the first time: Groupon. This company came seemingly out of nowhere and made everyone think about local marketing differently. Thousands of coupon addicts are now glued to their computers waiting for the next daily deal to appear that they can share with their friends. Groupon is now arguably the fastest growing company to ever promise to hit the $1 billion mark in sales within two years of its history.

Seth Godin, an outstanding marketing philosopher and author of many excellent business books, says that if others are copying what you’ve done, you’ve done something remarkable. By this standard, Groupon is an extraordinarily successful corporation with more than 200 imitators in the United States alone and more than 500 worldwide.

Andrew Mason, the founder of Groupon, has created a truly profitable business model. Groupon sure knows how to make a profit on its own. The big question is, does it make sense or not for your restaurant to participate in “daily deals” campaigns? Let’s see how “daily deals” campaigns work.

You offer a series of gift certificates redeemable at your restaurant at a deep 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 shared between you and the provider (Groupon or one of its competitors). An offer like this is designed to attract many first-time customers who have never heard of your restaurant and have never visited your restaurant before. Such a campaign can practically put your restaurant on the map. As sometimes happens, the positives come with quite a few negatives.

This type of heavy couponing will attract “bums”. Many restaurants that have tried Groupon’s marketing style report that customers who show up with a coupon in 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 special offers or discounts you may have that day.

Some restaurant owners commented that these customers tend not to tip much or don’t tip at all and are on the lookout for “gotcha” even when you offer the same food and level of service that you offer to non-coupon guests. What’s worse, few of these guests end up returning.

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 coming and discovering your restaurant for the first time. However, you need to make sure you have a plan on how to be profitable and how to keep these people coming back after their first visit.

Train your staff on how to work with coupon holders. Invite first-time visitors to become members of your newsletter, VIP club, birthday club, or other type of customer loyalty program you’ve established. Train your servers on how to capture the contact information of tableside guests. Consider programming your POS system to automatically add the tip to the check.

Offer Groupon deals only on days and times when your restaurant is slow and only on items that offer you a high profit margin. The cost of your meal is probably 28-36% of the menu price. Since you only get 25% of the value of Groupon, there is a good chance that you will lose money on this marketing campaign, even if some of the coupons go unclaimed. Remember: every coupon customer that comes in puts you more in the red unless you do something special to generate more upsells and repeat sales.

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