Technology

The Pros and Cons of Groupon for your Eatery

With  the two most popular group-buying discount sites, (Groupon and LivingSocial), having proven to be so extraordinarily popular with folks, often with eye-poppingly huge discounts for retail shopping opportunities, it’s a no-brainer to see why they are so much in the public consciousness. With food service being arguably the biggest source for users, the question is this: Is it really a good idea for restaurant entrepreneurs?Perhaps the biggest issue for most contemplating such a move is in knowing exactly what it is they wish to accomplish in doing so. Is it a smart promotional effort or a desperate, last-ditch attempt to save a business? Also, the seemingly invisible elephant in the room is whether one’s employees and management can handle a potential tsunami-like surge of business from bargain-seeking diners.

Before your restaurant takes the plunge into the Groupon or Living Social pool, one would be wise to mull over both the pros and cons of doing so. Here are a few points to consider prior to making the commitment:

 

PROS:

  • Groupon or Living Social can be useful tools for raising awareness of your establishment and its brand. Often a couple thousand vouchers per day are sold. (See my number 1 “con” below.) With literally hundreds of thousands users, your restaurant will have a temporary reach that only big-time publicists could dream of.

  • Having such a reach, a big motivator is a potentially substantial and quick inflow of cash over a period of just a few months or so. This fast cash can be very helpful (far better than a loan) during periods of slow business. However, it can easily be turned to a negative if you are depending upon something so capricious and temporary to keep you afloat.

  • Ever wonder why so many companies offer rebates? It’s not from the kindness of their hearts certainly nor is it primarily to motivate purchases either. It is mostly due to the innate laziness of most consumers. Many of these purchased vouchers simply will never get used, (a surprising 10% to 30% of them in fact). You, as the restaurant owner, get to keep the cash without slinging the hash. In other words, one hundred percent profit…

 

CONS:

  • As already mentioned, ask yourself if your mom and pop eatery can truly handle the potential surge of new customers busting down your little doors…

  • The sad fact is that this method for drumming up new business is almost always a net loss maker. Looking at typical food costs and then taking to account the discount of 50% that most will need to offer with these deals, you’ll be lucky to break even. If you further add in your labor costs, it will most likely end up being a money-loser.

  • Many establishments use this option too many times and, yet, even once or twice can have the effect of cheapening your brand. If consumers begin to expect discounts from you, how many times will they consider visiting and paying full price in that case?

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