Since its inception in 2008, Groupon has become a global name in market for discount daily deals. Businesses across a vast range of sectors have used the voucher selling giant as a platform to offer their goods and services at heavily discounted rates on the premise that large scale sales can be achieved in a very short period of time.
It doesn’t take much research to realise that one of the most common commodities to grace its website are discount dining packages. From backstreet café’s to Michelin star restaurants, there are genuinely incredible deals to be had up and down the UK.
But can a restaurant really benefit from offering such deals as ‘3 course meal for 2 with wine for £25’, ‘2 courses for £6’ or even ‘£40 dining voucher for £20’. When you consider the fact they will only see 50% of the revenue generated from the vouchers sales it seems ludicrous to think it could be viable, but on the other hand, if it wasn’t why would so many Restaurants put their name to it?
We take a look through all the ins and outs of running a Groupon deal at your restaurant and weigh up the pros and cons to help make sure your decision is the right one.
Now we’ve seen how the process works from both angles, the next step is to take a look into the important considerations you MUST bear in mind before going anywhere near contacting Groupon with your interest.
The proof is always in the pudding so lets do some hypothetical deals to mimic what happens in real life and what the restaurant can expect to receive from them.
In both of the cases used we will make the following assumptions:
In this example, the restaurant:
The revenue generated on the deal amounts to £3,000 (200 x £15). We immediately wipe out 50% as that’s where Groupon makes its money and we’re left with £1,500. Because we didn’t include a drink in the deal the restaurant takes £1,300 in total upsell revenue (200 x £6.50), so total revenue through the till equates to £2,800 (£1,500 + £1,300). To make this money the restaurant saw total marginal costs of £1,200 (200 x £6) leaving them with a direct profit through running the deal of £1,600.
Additional value to the restaurant was gained through a small percentage (5%) of new customers brought in through the deal turning into regulars generating an additional £1,200 over the course of a year (number of returning couples (12) x average yearly value of a customer (£150) = £1,800.
There was also the saved marketing expense on generating these 12 new customers, saving £600 in the process.
Outcome: Positive – moderate profit and a healthy amount of new customer generated.
In this example, the restaurant:
The revenue generated on the deal amounts to £2,500 (250 x £10). We immediately wipe out 50% as that’s where Groupon makes its money and we’re left with £1,250. Because we included a drink in the deal the restaurant only takes £375 (250 x £1.50) in total upsell revenue, so total revenue through the till equates to £1,625 (£1,250 + £375). To make this money the restaurant saw total marginal costs of £875 (250 x £3.50) leaving them with a direct profit through running the deal at just £750.
Due to a small percentage (3%) of new customers gained through the deal turned into regulars generating an additional £900 over the course of a year (number of returning couples (6) x average yearly value of a customer (£150) = £900.
There was also the saved marketing expense on generating these 6 new customers, saving £300 in the process.
Outcome: Negative – small profit and little future customer generation.
We’ve created a spreadsheet tool to help you quickly work out the viability of an offer at your restaurant. You can access it below either through Google Docs (click on the link > select file > make a copy > then edit your saved version). Alternatively there is an Excel version of our Groupon calculator, which can be downloaded below.
We asked a range of Yorkshire restaurateurs their opinions on Groupon. The majority of responses were negative, including those of Gerrard Marks of Sukhothai whom commented;
Rightly or wrongly we believe in offering good value at all times and feel heavy discounting is a downward spiral towards reduction in quality and service offerings whilst hemorrhaging the bottom line and diluting the perception of a quality based offering
Bikram Singh of Raja’s Tandoori is not convinced on the discounting method either, mentioning;
I have been in the industry a very long time. In my opinion the special offers and restaurant promotions don’t work. Good food and good service is the key to success.
Dave Burns, proprietor of BED in Harrogate stated that he would rather go out of business then rely on the group buying giant to prop up his restaurant. Despite many proprietors having negative feelings towards Groupon, Astrid Pot, general manager of Town Hall Tavern reflected on her experience with Groupon as a beneficial exercise for her city center Gastro Pub.
The offer itself was not profitable. The only money we made was on drinks as the food sold on the Groupon offer just covered the cost. However, as we sold over 700 vouchers and got approximately 1400 people through the door we ended up making more profit than we would have done without the Groupon offer.
When asked if she would consider using the voucher platform again for her restaurant, she commented;
Maybe. The only reason I would not use it is because we do not need it anymore. The experience has been very good and if I have had to fill a quiet time instantly I would use Groupon again
Looking at the evidence it does show a case for and against the use of Groupon as a positive marketing medium for a restaurant. Groupon will make 50% of your earnings regardless of how it affects your restaurant, so you must prepare with meticulous attention to detail what is going to work and how it will meet your restaurants objectives. We’ll leave you with our final observations on how you can do this:
Has your restaurant run Groupon or similar daily deal offer? What experiences do you have with of them and has it helped your business? We’d love to hear your comments, simply enter them below.
How to use social media to help fill your restaurant...
Pick up a marketing book and chances are you'll find...