Yesterday, I read a wonderful post by Ellen Malloy from the Restaurant Intelligence Agency. She analyzed the Groupon phenomenon from the perspective of a chef-owned restaurant, and demonstrated the crippling effects that this promotion can have on a restaurant's bottom line.
For those who are not yet familiar with Groupon (hello! how is it over there under that rock?), let me quickly fill you in. Every day (in multiple cities, not just Chicago), Groupon posts a deal or two in that city. The deal is usually incredibly valuable. For example, $125 worth of jeans for just $50, a mani-pedi for $25 or $20 for $40 worth of wine and food. The trick is that they deal doesn't "kick in" until enough consumers purchase it. In the case of the $20 for $40 worth of wine and food (today's deal, at my neighborhood wine bar, Volo), it didn't kick in until 250 people had purchased it. As of noon, over 2,000 had been purchased.
As a consumer, there is no doubt that Groupons are a phenomenal deal. They allow us to try new places and experience new things at just a fraction of the regular cost. However, I have recently started to wonder how this promotion affects the stores and restaurants who engage. Malloy's article did a lot to shed light on this.You should read her article in its entirety, but essentially, she estimates that most restaurants lose money when engaging with Groupon.
This doesn't mean that Groupons are evil. They can absolutely bring recognition and new customers to restaurants who need both of those things. Most marketing initiatives aren't free, and Groupon is no exception. However, as responsible consumers of great restaurants, I think we owe it to them (especially to the independent, chef-driven places) to be responsible if we use a Groupon. I asked Malloy what we, as consumers, can do to help make Groupons work for restaurants, and she had the following advice to share (I've embellished this with my own commentary):
- Tip heavily on the FULL amount of the bill (pre-Groupon discount). So, if you buy today's Volo Groupon? Tip at least 20% on $40, not the $20 you actually pay.
- Buy Groupons for restaurants where you can become a repeat customer, not just restaurants that you would never, ever visit without a discount of some sort. This might sound extreme, but restaurants participate in Groupon to get new customers. They are offering you a discount as a courtesy, because they hope you will love their food and their service and that you will respond to that by returning. Good restaurant citizenship should be practiced more often, so I agree with this advice wholeheartedly.
- If you like the restaurant? Become a big cheerleader for it! Locally-owned, chef-driven restaurants need all the help we can spare to get the word out about their offerings. If you like what you eat and experience, tell your friends. Bring them in sometime for a full-price meal. Malloy suggests you aim to bring in 8 new guests (at full price) to help the restaurant recoup its Groupon costs.
What do you guys think of Groupon? Have you used it? Do you like it? Let me know!