Tips for Running a Restaurant: Getting Your Groupon

I get asked ALOT about what I think about Groupon for restaurants. Should restaurant marketers use Groupon? Is Groupon a good idea for restaurants? So here is my thinking on the subject:

As with everything in the restaurant business you must be strategic when deciding what you will offer as an incentive. The Internet has made new forms of group buying, and the resulting potential marketing outlets, more available to both consumers and restaurant owners.  Entertainment books and daily deal sites such as Groupon and Living Social supply their customers with coupons for products and services from local or national companies. For example, an $100 dinner could be purchased by the consumer for $50 through Groupon, and then Groupon and the restaurant would split the $50. The restaurant would supply the meal valued at $100 and then receive $25 from Groupon. The consumer gets the meal from the restaurant for which they have paid $50 to Groupon.

While being able to advertise to these services’ large customer databases might seem like the perfect way to get on the radar of new customers, when digging further one can quickly see the potential problems with the business model for the restaurant business owner. Firstly when you do the math you can see that very often the restaurant is either only breaking even or losing money on the deal. In this case, if a deal is ‘successful’, the sheer quantity of sales could debilitate the restaurant financially. Secondly, a restaurant business must ensure the quality and standards of the service for this reduced price. Can the restauranteur handle the surge of business that a successful deal (and those that Groupon pushes) brings, and which will most likely swamp a small independent restaurant with too many customers, risking a possibility that both existing and new customers will be dissatisfied, or that there won’t be enough product to meet the demand. A large national chain may be able to handle the influx of business, but most smaller restaurants will often be overwhelmed. There have been many stories of companies struggling with the temporary increase in business such as a coffee shop in Portland which struggled with an increase in customers for three months, when it sold close to 1,000 Groupons on the one day it was offered. Or the owner of UK based ‘Need a Cake’ cupcake shop who normally made 100 cupcakes a month, and found herself having to bake 102,000 to cope with the deal.

While Groupon officials state that ‘deal’ subscriptions should be capped in advance to a reasonable number, it is often difficult to get Groupn to agree to a deal that is reasonable for the restaurant marketer. After all, Groupon’s aims are not to build a restaurant’s customer base, but to increase their own revenue. Therefore they push merchants into the best deal possible for the consumer in order to guarantee a successful uptake of the deal, and their own income. The small restaurant is really just a vehicle for Groupon to reach its own goals.

Many of those marketing restaurants believe that a Groupon deal will help them get the word out about their restaurant and acquire new customers that will then become a loyal customer base. However because of the nature of the deals, Groupon often attracts one-time bargain hunters. In addition, because of the strain on the restaurant business, often the quality of service is affected and can even be detrimental to an already existing customer base. The knock on effect from the sheer demand can actually have a negative impact on the reputation of a restaurant.While sensational deals might get you added exposure, make sure that the exposure and the new customer base is of the quality that you need and want as a hospitality business.

Some tips for determining what deals will work best for you as a restaurant marketing tool:

– Do the maths and make sure that your restaurant can handle both the volume and the financial impact of a deal. Always assume that the deal will be twice as successful as your first estimations.

– Be 100% sure that you can provide your services at your highest standards

– Be compelling and creative. Remember – it’s not necessarily the value that you give away, but the creativity and compelling nature of the offer.

-Test different offers and ideas to find which are the most compelling and which make the most financial sense for your restaurant business

– In order not to cheapen the perception of your restaurant, rather than discounting, prefer add ons. Instead of giving away a meal, add a free glass of champagne to the meal.

Opt for slow and steady growth which your restaurant business can handle financially while maintaining high product and service standards.