Restaurant Discount Schemes....Good Or Bad For Owners ?

[Midfield General]

As a new restaurant owner would it be worth my while to run one of these discount schemes Group'on, Snap Fax, KGB etc

I know its not ideal to give away discounted food but is it worth it to get our name out there.

Has anyone had any experience of Snap Fax in particular ?

Thanks in advance for any advice.

 

[Richie N]

We looked at Groupon for our eatery and it wasn't worth it at all.
I would say no imo, look at the recent article on cupcakes they did, the company ended up losing so much money over it.
They wanted us to do a lunch special, which say was charged at £5 usually, they suggested charging £2 for this to Groupon members, then out of this you would have to give Groupon themselves 50%, so for something you charge £5 for usually, you would end up only receiving £1.
Definitely need to do your sums before committing to anything like this.

 

I agree with the comments above re Groupon, etc........you really need to do your sums before getting involved in something like this.

A mate of mine runs a Restaurant locally, only opened a couple of years ago.....he had a discount scheme going for the months of Jan-Mar (quiet period) via a locally-managed scheme, and discount cards for everyone eating at the place, etc. It offered a decent discount, but he did very well out of it, and gained some regulars who have really added to the business.

 

[patientlady]

We have a restaurant near us, who have been running there own, cleverly put together 'table d'hote' menu lunch times and evenings. Changes monthly. Three courses for £9.95 for the first two years but this year for two courses. £12.95 Xmas. Lovely presentation, fresh produce, not a lot of food but three couses, so enough. They bump up the offering with bread basket and dip £3.95 I think. They are full Monday through Sunday eve and pretty full on lunch. Good wine offering. They have many large tables booked. They do not cater for the lower market. No pasta or pizza.
The concept works and you wouldn't go far wrong by offering the same. They email every month and we do tend to eat there on the week the email is received. You need to book.

 

[Laurenpears]

I would avoid too!!
I think a well designed menu of exiting seasonal foods at a good price will always speak houses abouve these discount places!
I for one am always drawn in by "Two Courses for £10" as were driving home from work or out on a weekend!

 

[Moneyman]

A decent fixed price menu option and flyers is probably much better. especially for lunches where the budget is tighter.

 

[Rumolloy]

Hi Mid Field General,

I worked in hospitality (in 4* hotel) for 2 1/2 years before my current role. I worked as the restaurant manager and then later as the business development manager.

Having collaborated with Groupon in setting up a deal I believe I'm well placed to offer advice.

The way it works is that as a previous poster in this thread mentioned they take a 50% cut; at least this is their starting offer. I managed to hammer them down to 70:30 but this was in return for doubling the amount of room package deals I was originally prepared to sell at the bargain basement model.

How their business model works is that they work on a cost plus basis. ie. they ask you what your most expensive starter, main and dessert are. They then encourage you to throw in a glass of wine with dinner. They look at your rack rates (applicable to hotels only) for rooms and take the highest. The calculators at Groupon are very creative I must say. In the end I didn't go through with it for several reasons:

(1) You are not going to make money from it; there are too many T&C's and ways round for both Groupon and customers.

(2) I feel that if you lower your price too much then customers percieve you to be making 'a killing' when you sell it at your full price. This is detrimental to your brand as you could be construed as over priced even when your are not.

(3) Groupon sales team kept telling me that if 100 people buy the deal then it is likely that 50% or more won't turn up. Furthermore, they encourage you to put in place restrictions i.e. no more than 2 Groupon deals could be booked in over a weekend, exclude bank holidays, make demands on what night the meal could be had on their stay. Basically make it hard for your customers to avail of the deal. The business you are in is hospitality and as I always say; The clue is in the title! You are not going to build a good customer base if you are the most ackward outfit in town.

Ok, so I've slammed Groupon (thanks I hear you say, but is there nothing positive I can do at all?)

So now I will give you some practical advice:

(1) Most importantly, setup, encourage and monitor your TripAdvisor profile. Encourage guests to make comment. Try to avoid mentioning it to the guy who's steak you have overcooked! TripAdvisor is a superb way to gain credibilty in a cut throat industry. Don't reply to everyone all the time. You should leave it fairly independant - one of our competitors "cheese ball-ed" (I think I just made up a word) everyone who commented. It looked patronising to be honest. You might make an opening statement on TripAdvisor along the lines of we want this to be an independant forum for comment and are greatful for all feedback you provide blah blah blah. Although DO defend if you think someone has unfairly reviewed you - I can provide you some more details on this at a later date if you need.

(2) Invite local newspapers/journalists in for a free meal. All journalists will write you a review in return for the hospitality they recieve.

(3) Similar to the last point but in the 21st Century important enough for its own bullet point. Invite food bloggers (there are thousands of them so select carefully i.e. one who has a good following or who is well regarded.) Often foodies telling fellow foodies how great somewhere is has a whole lot more credibility. Get the bloogers to write you a review again this is standard proceedure. Invite as many as you want/can. Make sure that when they are coming that you have your strongest staff on , the place is clean (it should be any how - but if it gets a little grubby make sure to make it sparkle for your VIP's) and most importantly make sure chef is well briefed and cooks stunning food. Again I have further little ideas I will throw your way if you want regarding VIP visitors and creating the right impression.

(4) Use social media. loads of enterprise centres/govt enterprise schemes/tourist information centres are running courses at the moment because it is the latest craze. If you can attend one or at the very least read a bit online before you jump into it. i.e. what to do what not to do etc. Encourage hen parties, birthday parties, christenings, weddings to connect with you on Facebook. Use gimmicks sparingly as these again cheapen the look of the place. For this you need to have a fair idea of you target market. i.e. is it an intimate eatery that is more suited to young professional couples, larger parties etc. You do not want to post photos of the local rugby team 'bailling in for a feed' if this is not your target market. This is known as image/perception marketing. Be aware of your image.

(5) When customers are leaving ask present them a comment card (again I will help you design one of these if you have not got one already) ask them to fill it in. We can build one that is easy to codify your results for easy performance monitoring. Would be delighted to assist you with this aspect. collect email addresses on this to start building a rich and targetted database of clients again don't torture your customers but if you have 'need' times where demand is lower than usual you can use this perfectly.

(6) Have business cards with your FB, Twitter (if you use it) and Tripadvisor usernames for people to interact and share their experiance online.

This is a good overview of your options. If you need any assistence at all please dont hesitate to PM me and I'd be delighted to assist.

Talk Soon

Ruairi

 

[DarrenTSO]

Calculate the cost of the Groupon against your regular cost per acquisition via other marketing methods. Too many people fail to do this.

 

[nk400]

I think it's definitely worth doing to get your name out there. So long as you can find a structure whereby you don't actually lose money.

Word of mouth is so important for restaurants, you really want to encourage a viral effect and for that you'll need to do some 'seeding.'

Personally if wanted to market a new restaurant I'd have

a) launch strategy for getting people through the door in the first few months
b) a referral strategy to encourage word of mouth
c) retention strategy to get previous customers coming back

 

[MancunianCreative]

I would look at Groupon like this;

If you was to advertise your restaurant to X amount of people and either use local newspaper or billboard adverts it is going to cost £xxxx. No guarantee on returns for that whatsoever.

If you use groupon, you give a discount and I believe groupon take a % of the actual sales also, you are only discounting for actual people in your restaurant.

If you are good those people will return. Getting them in the front door in the first place is surely the hardest thing?

 

[Richie N]

I would look at Groupon like this;

If you was to advertise your restaurant to X amount of people and either use local newspaper or billboard adverts it is going to cost £xxxx. No guarantee on returns for that whatsoever.

If you use groupon, you give a discount and I believe groupon take a % of the actual sales also, you are only discounting for actual people in your restaurant.

If you are good those people will return. Getting them in the front door in the first place is surely the hardest thing?

90% of Groupon members purchase the deals as they are only looking for bargains, which doesn't mean they will return.

 

[MancunianCreative]

90% of Groupon members purchase the deals as they are only looking for bargains, which doesn't mean they will return.

That's a very broad generalisation. If they get into your restaurant and it is good value I am sure a large percentage would return. The 'bargain' element is perhaps enough for someone to try something as it lowers the risk.

I use Groupon for ideas on things to do with my family, places I can take my son.

 

[patientlady]

Further once I have used a voucher/discount offer in a restaurant I might expect that every time
I go with my daughter to Prezzo as she is short of money and we always go there with a voucher. I am sure I might feel cheated if I went with out one

 

[Richie N]

That's a very broad generalisation. If they get into your restaurant and it is good value I am sure a large percentage would return. The 'bargain' element is perhaps enough for someone to try something as it lowers the risk.

I use Groupon for ideas on things to do with my family, places I can take my son.

If they can purchase a lunch for £2, they won't be happy paying £5 for it in the future.
That's just from my experience of talking to others that have used Groupon and others for their restaurants.
The customers are then likely to move on to the next restaurant offering a good deal.
A percentage of them might return but I doubt it will be the majority.
When we worked out the pros and cons of using Groupon, we didn't see a benefit at all.

Our best deal was offering customers a loyalty card, that way you get customers returning.
Also encourage customers to sign up to facebook and twitter, then offer special deals to fans.

 

[Rumolloy]

That's a very broad generalisation. If they get into your restaurant and it is good value I am sure a large percentage would return. The 'bargain' element is perhaps enough for someone to try something as it lowers the risk.

I use Groupon for ideas on things to do with my family, places I can take my son.

I'm with Richie on this one. I wouldn't entertain the notion that even a small fraction of customers will return. You are not (generally) talking about your target market looking on groupon, unless of course your target customers are bargain hunters in which case there is no need to go on Groupon - just sell cheap cut out the commission.

I think people over rate mass exposure. Your are talking about nationally exposure here - what good is it if your are based in Newcastle and your message is reaching people from John O'groats to Lands End on the premise of a bargain. Proper marketing will return you visitors from everywhere inbetween the two if you are renouned for quality and being brilliant at what you do - not for being cheap; there are plenty of cheap places to eat as it is. A bargain will not produce a loyal customer because the next time you try and charge people what it is worth you'll have a crying match on your hands.

Fundamentally, the model does not make you any money. Any and all the extra effort to try and police the crumby deal is simply not worth the hassle and effort to appease 50-100 or 200 who have scooped the deal of the century. The next thing is your bargain hunters will complain because they have to pay £3 for a pint irrespective of having made off with your quarterly profits and still will never return!

Sorry rant over; do not confuse national exposure and national marketing. If you think about it these bargain deal sites actually force you to move away from a business model that works to adopt a price sensitive competitive model.

My standing advice would be to avoid this as its more hassel than it is worth and the benefits they moot are only percieved.

 

[DarrenTSO]

If they can purchase a lunch for £2, they won't be happy paying £5 for it in the future.

If the product is good enough, people will pay for it. There will always be people that move on to the next bargain deal, but you'll also win a certain percentage of normal paying customers as well. If you don't you're doing something wrong.

Perhaps the people that complain about Groupon not working for them, are not actually providing a particularly good service that people would be happy to pay full price for?

I'm not saying that anyone here is guilty of it, but you do hear stories where people have a coupon (or a Groupon) and are treated like second class customers by staff...

 

[businessfunding]

Probably ovelapping t an extent what has already been said, but with some direct experience of Groupon my thought are:

Take into account all costs and be entirely certain that you are making a gross (or marginal) profit on the transaction. I cannot see any justification in selling at a gross loss, or even breaking even.

When evaluating overall benefits, remember to take into account:

1. Upselling opportunities / take-up. Will the diners drink wine or tap water? If you offer 2 courses, will they but a thrd course etc.
2. Opportunity cost, if your restaurant is empty, this small profit is contrubuting to overheads, wheras if you are exclusing potential full-paying customers, it becomes a hidden cost.
3. Repeat business - will the diners (even a small percentage of them) return for a full meal?
4. Referal - either word of mouth through online media. Will your diners convey you in a positive light?

It is very important tot track customers wherever possible; quite often marketing initiatives which you have written off as pointless yield positive results which they are not credited for.


If one in 10 groups return as paying customers (or introduce another paying customer) it is probably worthwhile.

 

[sigmais]

I'm using Groupon similar service for my restaurant. I agree that some member mentioned that you are earning nothing for this kind of promotion. By the way, you should consider the budget you spend on the advertising to let public know your restaurant, and compare the cost of discount + commission to groupon.

This kind of promotion is actually good to promote your restaurant, let customer try your food.

 

[jeremy49]

My take on Groupon is that you will not make money from it now or long term Ie
A typical Groupon Deal £15 for £40 worth of food (based on a local restaurant)
Say gross profit of 70% and the £40 is more like £30 so the the true food cost is say 30% of £30 ie £9
Therefore Sales £15
Less cost of food £9
Less VAT 20% £3
Less Groupon fee £6 (guess)
Leaves the owner with a net loss of £3 to acquire customers, who will probably not return until the next Groupon.
Need we say more.

 

[Richie N]

My take on Groupon is that you will not make money from it now or long term Ie
A typical Groupon Deal £15 for £40 worth of food (based on a local restaurant)
Say gross profit of 70% and the £40 is more like £30 so the the true food cost is say 30% of £30 ie £9
Therefore Sales £15
Less cost of food £9
Less VAT 20% £3
Less Groupon fee £6 (guess)
Leaves the owner with a net loss of £3 to acquire customers, who will probably not return until the next Groupon.
Need we say more.

Exactly, Groupon do usually insist of 50% of the discounted price.

It may work for some industries but I'm not sure it works for restaurants but it depends on the location, deal you are offering and the numbers you are going to get in.

Just remember what happened to the cupcake lady who did Groupon and actually made a huge loss in doing so, I wander how many return customers she got afterwards.

 

[MancunianCreative]

My take on Groupon is that you will not make money from it now or long term Ie
A typical Groupon Deal £15 for £40 worth of food (based on a local restaurant)
Say gross profit of 70% and the £40 is more like £30 so the the true food cost is say 30% of £30 ie £9
Therefore Sales £15
Less cost of food £9
Less VAT 20% £3
Less Groupon fee £6 (guess)
Leaves the owner with a net loss of £3 to acquire customers, who will probably not return until the next Groupon.
Need we say more.

You calculate the cost per customer and state that they will not return. ALL marketing has a cost per customer. At least groupon can be measured.

Instead of getting those customers through the door and thinking them eating is costing you money, think of it as your chance to tell them what else you offer and actively sell to them what's good about your restaurant.

With the attitude of these people are costing money, you'll get nowhere.

 

[MancunianCreative]

Have you or anyone else spoke to groupon or to local restaurants that have done groupon deals about how they found the return of customers afterwards. Solid research too, not just anecdotal.

Find out what the return is like. Remember, people can often put on 'free' taster nights for people to try their food. You have to spend to make. You also have to have a good product. If I come and try a cheap meal somewhere and I love it, I'm coming back!!

 

[tom wibaut]

Discount deals really hurt margin unless your product can take it. offer smaller discount over several visits so you have have a headline discount split over several transactions thus protecting margin