What Restaurant Owners Should Know About Groupons (Part Two)

Yesterday, in part one, I discussed some of the factors you should consider prior to the launch of your Groupon offer.  These were all items that needed to be addressed in advance of the promotion in order to make sure you were prepared for the onslaught of new guests in the first week.  If part one was the preparation, this half of the list deals with the execution.  These are the tips on how to capitalize on the new guests that will be arriving at your front door.

The only reason you are willing to discount your food and drink by up to 75% is to make a great first impression on the guests who arrive.  You should not look at these guests as one time diners, but rather as potential regulars.  Groupons are a tremendous marketing tool, but only if you can get the guests to return.  Here are some tips on how to get the guests to return with their friends.  This section also includes some tips on how to measure the results of your efforts and best allocate the revenue towards your p&l.

6) Emphasize “Four Wall” Marketing: “Four Wall” marketing has been a catchphrase for some years, but it is vital to making your efforts with Groupon successful.  The premise is that you most effective marketing efforts (both in terms of money and energy) are towards the people who are already within your four walls.  You need to have your staff well versed on upcoming promotions, weekly events, and other reasons for your first time diners to return.  This could also include knowledge about the history of your restaurant or information about the food you serve.  Groupon will send them in, but this is how you will get them to return.

7) Feature Profitable Items: You are already taking a huge cut in revenue with groupons.  In order to alleviate some of the effects of this, consider running specials or featured items that have lower supply costs.  The difference between an item with a 20% food cost and one with a 30% cost is incredibly important while running this type of promotion.  This should only be done to the extent that it does not decrease the quality of your guests’ meals.  Remember, the key is to get them back.  While this type of promotion may mean sacrificing profits, it does not mean that you cannot mitigate the damages with a few well thought out specials.

8) Track The Redemptions: Once your offer has expired, you will know exactly how many groupons were sold.  It is important for you to know how many are outstanding at any given point.  This will be very important to the next two points on this list.  Knowing this will also allow you to accurately determine when they expired what percentage went unredeemed.  If you focus only on the food cost on a monthly basis, you do not get an accurate representation of the value of the promotion.  This will be very important in deciding whether or not to do another promotion in the future.

9) Properly Allocate Revenue: This came up time and again in my discussions with restaurateurs who have issued groupons.  The first tendency of all of them was to take the initial check and apply it to the revenues of the first month.  This helped significantly with the p&l for the first month, but made it look awful for the rest of the promotion.  There are two possible ways to report this revenue to prevent this problem.  The first would be to include the revenue as they are redeemed.  The percentage of groupons issued that are redeemed each month should equal the percentage of the revenue allocated to each month.  The revenue from the unused groupons can then be applied after the expiration date.  The other method is to spread the revenue over the time of the promotion.  Rather than doing it evenly, weight it for the first and last month when the most will be redeemed.  The general formula most seem to agree is best for a three month promotion is 45%-20%-35%.

10) Remember The Last Weeks: This is the advice I have heard from everyone who has done a Groupon offer.  As the expiration date approaches, expect another rush of customers.  Too many restaurants have been caught off guard by this late wave.  Mark it on your calendar.  Order and schedule accordingly.  Assuming you have offered at least a couple of months for them to be redeemed, you will need to watch for the expiration rush.  The best way to do this is to start at the beginning of this list and repeat the steps.  During this promotion some of the work you put into cleaning, stocking, staffing, and specials may have fallen off.  Stop and reanalyze these steps as the promotion comes to an end to make sure you are turning the later guests into regulars as well.

The impact of the Groupon phenomenon on the restaurant industry is too great to ignore.  If you choose to participate in these promotions, you must be prepared to fully capitalize on the increased traffic coming through your doors.  Creating a strategy that will convince these guests to return in vital.  Groupon gives you the chance to make a first impression on a large number of guests.  These tips will help make that first impression as positive as possible.

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About David Hayden

David Hayden is a restaurant marketing and training consultant based in Kansas City, MO. He writes a series of 9 blogs collectively known as The Hospitality Formula Network and is the author of "Tips2: Tips For Improving Your Tips" and "Building Your Brand With Facebook"

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  • http://blog.schedappy.com Kate @ Schedappy

    This is a great article. I’ve been watching the whole Groupon backlash unfold with great interest. The negativity has been so loud recently that as a frequent restaurant-goer, I’ve opted to avoid purchasing Groupons altogether. I think I would feel guilty knowing how damaging a Groupon offer can be to a restaurant. But your advice makes great sense and I feel a bit better about possibly purchasing a Groupon in the future. Thanks for your wise words.