Should Your Restaurant Participate in a Group-Buying Deal?

There's no lack of strong opinions coming from business owners on group-buying deals. Could it be worth it for you?
Freelance Content Marketing Writer and Strategist, Freelance Writer for National Brands including IBM, Ameriprise, Adobe, Samsung and Hewlett Packard
February 07, 2012

If you ask restaurant owners their thoughts on participating in group-buying deals, like the kind offered by LivingSocial or Groupon, you will get a variety of experiences and strong opinions. Some will say that the deal helped significantly grow their business while others will tell you that they vow to never sign up for one again.

Matt Gordon can be grouped into the latter class. As the chef and owner of Urban Solace Restaurant in San Diego, he felt that the group-buying deal he offered was not a positive experience for his business and doesn’t plan on signing up for another. "The two things that make them most difficult is that they are time-consuming to track during a busy service, and it seems that patrons generally tip on the discounted amount, not the original amount, which decreases our servers income and makes morale low," Gordon said. His restaurants ran several deals through local magazine and newspaper deal services, offering $40 worth of food for $20.

On the other hand, Java House Café in Middletown, Del., used a Groupon deal to offer a panini sandwich, kettle chips and a specialty drink that increased its new customers by 65 percent. “We were able to extend our reach and brand by being able to tap into audiences that normally would not come across our establishment unless we developed a significant digital signature,” says co-owner Cleo Clark.

Two restaurants. Two very different experiences. So you may be wondering if group-buying deals are right for your business. The answer: It depends. The main difference between restaurants that see positive results and those that don't is carefully structuring a deal that will bring in new, regular customers without overwhelming your restaurant—or your bottom line. Here are three questions to ask before signing up for a group-buying deal.

Can you bring in new customers?

Since most restaurants break even or take a loss on the actual proceeds from the voucher purchases, the main reason to participate is to attract new customers and then getting some repeat business out of those customers. If you think that the group-buying deal will primarily be purchased by your regular customers, then you may want to focus on other marketing strategies instead of group buying.

“We found that the offer brought in a very small percentage of new customers. The majority were being used by customers with whom we had already built a relationship,” says Rod Seale, franchise operator of Jimano's Pizzeria in the Chicago area. “When you take into account that we received $4.75 for $20 worth of food, which didn't even cover the cost of the food, I believe it had no positive effects on our business.”

Is there a specific location, product or service you want to promote?

One strategy that experts say can bring positive results is to structure the deal to promote a specific location, type of meal or time of day for which you would like to increase business. For example, if you just launched a catering department, started Sunday brunch or opened a new location, then group-buying deals can be a good way to bring exposure to your new offerings.

When the Donovan’s family of restaurants opened another restaurant, Donovan's Prime Seafood in San Diego, they ran a group-buying deal through the area's local paper  for $100 worth of food at the new location for $50. The restaurant sold over 4,000 vouchers.

"By partnering with The San Diego Union-Tribune on this offer, we were able to tap into the paper's wide network of promotion capabilities.  I believe this, coupled with the respected Donovan's name in San Diego, helped guide the success of this promotion," says owner Dan Shea.

Can your restaurant handle the increased business?

If the deal brings in many new customers, but you are not able to provide quality food and top-notch service, then there is a low chance of converting them into regular customers.

Before signing up, make sure that you have adequate staffing and food supply to meet the demands of the deal. One way to make sure that your restaurant is not overwhelmed is to structure the deal to bring people into the restaurant during your less busy services. For example, if you have a large lunch crowd, then consider a group-buying deal for dinnertime.

You should also create a plan for turning the new customers into repeat customers, by gathering e-mails and promoting your Facebook page. "We were able to turn the new customers into repeat customers by collecting their personal information [name, e-mail address and telephone number] and adding them to our e-mail marketing list as part of a specific, targeted customer database to receive updates on special offers, discounts and customer appreciation events," says Clark.

After thinking about each of these questions, you should have a clear picture of whether or not group buying is a fit for your restaurant. If you decide to offer a promotion, be sure to track the number of new customers that visit, your profits and the percentage of the group-buying patrons that become regular customers. The results will tell you if group-buying deals should perhaps be a regular part of your marketing plan.

Jennifer Gregory is a journalist with over 17 years of professional writing experience. Jennifer blogs via Contently.com.

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