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The Pitfalls of Daily Deals For Restaurants

The concept of “Daily Deals” for restaurants is a good topic.

When Groupon was the ‘hot-shit’ in town, they were responsible for a lot of restaurants going under. You can compare it to a payday loan – people that really need the money have a terrible time 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 customers the deal value. Everyone got burned.

Groupon and other daily deal sites became very popular during the recession after 2008. If there is a new recession or even a ‘restaurant recession‘, restaurants may be inclined to use daily deals as a strategy to increase restaurant sales. They should be warned. An attempt to increase revenue or traffic using a daily deal may sacrifice A LOT of profit.

Let’s take a look at some of the Pros and Cons behind running daily deals for your restaurant:

Pros

Attract New Customers

The best part of offering a daily deal at your restaurant is that it may attract new customers. Customers that might have been waiting to try your food may make the opportunity happen if they’re offered a deal. Offering a deal that’s cheap for customers can encourage them to order online or to visit 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.

If you run a deal on 1 item, pick an item that you can heavily discount, but still be able to breakeven. Making sure you cover the per unit cost will prevent you from losing money while running the deal. Also pick a time when you won’t be sacrificing sales in an effort to market the daily deal. Make the daily deal only available during a certain time of the day – let’s say 2-5pm – when you might not be as busy. This could give your restaurant a quick boost in both sales and new customers.

In order to stimulate potential customers, you should provide a discount of 20%. This percentage is enough to attract the targeted group of customers. You can also offer, for example, two pasta meals for the price of one, which is a very useful way to attract new customers and more than one customer at a time.

Fun For All

While ‘making’ money and getting new customers, creating a daily deal just be plain fun for your business from time to time. 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 relationship with customers.

Cons

Product Availability

When running a daily deal for your restaurant, you risk of running out of an item. If you run out of the item – great! Your daily deal was a success. However, it can create a negative experience for those who wanted to grab the deal, but missed out. If this happens, be sure to offer a coupon or a different discount to those customers to ensure they still make a purchase.

Take a Loss

While daily deals COULD bring in extra dollars, you also have the potential of seeing a loss. In fact, you should count on taking a loss (maybe even a BIG loss).

When you break down typical food costs and then apply a 50-75% discount, it’s difficult to break even. This isn’t even calculating the chance of 50% of your existing customers using the deal. Furthermore, add your labor costs, you will most likely end up losing money.

Discounts will always result in reduced profits on an item, but the cost of making that item will not change. Thousands of restaurant owners believe 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 “train” customers to purchasing from you if you only have a discount. As a result, this can make it difficult to generate repeat business from a daily deal at your restaurant. Customers will most likely wait until your next deal to visit your restaurant again. That’s not loyalty. In fact, it has the opposite affect and will push customers away from your restaurant because they feel they will be overpaying for their meal.

Eric Clemons, a 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.”

The people who find your restaurant through a huge coupon will wait for your next coupon to come back. This will continue to enable these types of customers, by rewarding those who have no real relationship with your restaurant. Instead of offering a daily deal, figure out ways to reward customers who continue to support your business by paying full price. These are the customers you want to keep on board long-term and will truly benefit your restaurant’s business.

In Summary

Restaurants are probably better off focusing on ways to attract and retain local customers that will be loyal to your business. Using a daily deal to bring in ‘new’ customers that may not come back OR sacrificing profits to existing customers that take advantage of a deal won’t increase profits.

Activate Your NetWaiter Site

If you want to attract more local customers, keep them informed about your restaurant, and boost revenue without a daily deal, check out NetWaiter’s platform and network. You can search for, and activate, your NetWaiter site and app here:

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