It’s a good topic. When Groupon was the ‘hot-shit’ in town, they were responsible for a lot of restaurants going under. I compare it to payday loans – the people that really need the money have a terrible time actually paying it back. The ‘funny’ thing was that if a restaurant made a deal and took the small percentage of the sales upfront (like 25-30% of the total value), THEN went out of business, Groupon was forced to refund the deal to customers. Everyone got burned, but Groupon took the largest hit.
Let’s take a look at some of the pros and cons behind running daily deals for your restaurant:
Attract New Customers
The best part of offering a discounted daily deal is that it will potentially attract new customers. Customers might have been wanting to try your food for awhile but are already committed to their favorite restaurants. Offering a deal that is cheap and quick for both you and the customers is a win-win to get them to order online or to patron your restaurant. In fact, 50% of customers ordered specials at least once in a restaurant.
Make Some Money
Having a quick daily deal is the chance to make some quick money. Pick an item that you can discount but still breakeven per unit cost so you won’t lose any money while running the deal. Also pick a time where you won’t be sacrificing sales in an effort to market the daily deal. Full-price items will always be better than any discount. Make the daily deal only available during a certain time of the day – let’s say 2-5pm – where you might not be as busy. This could give your restaurant a quick boost in both sales and new customers. In order to stimulate your potential customers, you should provide a discount of 20%. This percentage is enough to attract the targeted group of customers and make you a profit. You can also offer, for example, two pasta meals for the price of one, which is a very useful way for attracting new customers.
Fun for All
While making money and getting new customers, creating a daily deal and just be plain fun. It’s an opportunity to take a risk marketing your items in a way that you might not normally do. Launching a daily deal might also be unexpected for both current and new customers, so you could develop a new quick relationship with these customers.
When running a daily deal, you are at risk of running out of product. If you run out of the item – great! Your daily deal was a success. However, it can create some negative experience for those who wanted to grab the deal but missed out. If this happens, make sure you offer a coupon or some different discount to those inquiring about the deal to ensure they still can be a customer.
Take a Loss
While daily deals COULD bring in extra dollars, your also have the potential of seeing a loss. When you break down the typical food costs and then apply a 50-75% discount to the item, it is difficult to break even. This isn’t even thinking if you don’t have 50% of customers using the actual deal. Furthermore, add your labor costs, you will most likely end up losing money. Discounts will always result in reduced profits on the item or items included in the coupon campaign, but the cost of purchasing that product will not change. Thousands of restaurant owners believe that their promotions are providing a discount that will be helpful to their business while they are actually devaluing the food and/or dining experience.
Lack of Loyalty
Once a customer has purchased a deal, what happens next? Offering daily deals can get customers used to only purchasing from you if you have a discount. As a result, this sometimes can make it difficult to acquire repeat business. They most likely will wait until your next deal ti purchase again.
Eric Clemons, Wharton professor of operations, information and decisions, stated: “There was no way of guaranteeing that you weren’t cannibalizing your existing customers, giving a discount to people who would have bought from you anyway. There was no way to guarantee that the customers you attracted would ever come back without a discount. There was no effective way to limit the quantity of items you sold at a discount.”
Remember, the people who found you through coupons will wait for your next one and the one after that. This isn’t necessarily a bad thing, but this will continue to enable these types of customers by rewarding those who have no relationship to the success of your business. In addition to offering daily deals, figure out a way to reward customers who are continuing to support your business by paying full price. These are the customers you will want to keep on board long-term and will truly benefit your restaurant’s business.