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Very interesting. Most of the Groupon customer stories I have read thus far are from lower-margin merchants such as restaurants. Since Groupon customers likel
by neovive 15y ago
Very interesting. Most of the Groupon customer stories I have read thus far are from lower-margin merchants such as restaurants. Since Groupon customers likely skip the upsells (wine, appetizers and desserts), restaurants seem to be less positive about their experience in general. They need to focus more on converting Groupons into returning (full price) customers to generate positive returns.
- joeguilmette 15y agoIt baffles me. I went through Trubates the other day. Bought two $8 coupons for $20 of food, limit two per table (!). Spent $16 for a feast. Why would I upgrade? However, had it been limit 1 per table, only applied to appetizers, had a 1 drink minimum, or was only available weekdays, it would've worked out better for the merchant. As it was they structured the deal so there was NO WAY I'd upgrade.
- pbreit 15y agoRestaurants have very high gross margins (food is only about 30% of a restaurant's costs) which is why Groupons can actually be really good for them. It is absolutely critical for restaurants to fill seats.
- kgrin 15y agoI think it varies greatly... I've heard from at least two restaurant-manager friends that the margins are actually quite low. (I suspect this varies quite a bit based on the "tier" of establishment).
- biot 15y agoFor every $100 of food you sell in a Groupon deal for $50, Groupon gives you $25. At 30% margin, the food costs $30. Every Groupon deal a restaurant does puts them deeper in the hole at those margins.
- pbreit 15y agoBut then you only have to get to $110 to break-even. Regarding margins, it's the gross margins that are high. That's correct that overall profit margins are thin but gross margins are more important when discussing incremental business.
- biot 15y agoPerhaps you're misunderstanding. Let's say there's a Groupon "$100 of food at ABC Restaurant for $50". You pay $50 for the deal to Groupon. Groupon takes half of that as their commission, leaving the restaurant with $25. Now the restaurant has to provide you with $100 of food for the $25 that Groupon gave them. If the cost of goods are 30%, that $100 in food costs them $30. They're only getting $25 for it. My slide rule tells me that's a $5 loss per customer. The restaurant hopes to make it up on drinks and such, but that $5 loss is only cost of goods and doesn't include staff, rent, and other overhead. It also doesn't factor in the fact that people who came to your restaurant only because they could get cheap food don't tend to be big spenders. I'm sure you've seen this: http://posiescafe.com/wp/?p=316 http://posiescafe.com/wp/?p=316
- pbreit 15y agoI'm not misunderstanding. You said there'd be a $5 loss on a $100 order. I said a $110 order would thus break even. It's irrelevant to look at all the fixed costs when considering incremental revenue. Those would have been spent regardless. The Posie's owner has only been in business less than 2 years and did not seem particularly business savvy. In agree that you probably gt adverse selection but also not relevant in this thread.
- biot 15y agoThanks for the clarification... I wasn't seeing where you came up with the $110 figure.
- joeguilmette 15y agoOr let's assume they lost $5. They just paid $5 for the opportunity to impress 4 people and gain 4 regular customers. $1.25 to bring a human into your business isn't that expensive, especially if they actually showed up. If you divided the cost of a billboard into how many people walked in the door, it may cost you much more.
- Duff 15y agoHuh? Restaurants typically have razor thin margins. And that's including front of house staff who are mostly paid directly by the customer!