Does a day go by without another pitch from a daily deal coupon site, such as Groupon or LivingSocial? Didn’t think so.
The number of daily deal coupon sites has exploded in recent years as a way for operators to land loyal customers paying full price. While the thrill is fading for restaurants, these sites are still banking mad cash—nearly $3 billion in sales in 2011.
“Restaurants were hoping to get people in and turn them into repeat customers,” says Bonnie Riggs, a restaurant industry analyst at market research company the NPD Group. “But they found that (most) took advantage of the deal and didn’t return.”
Recent research from Rice University shows that only 44 percent of daily deals for restaurants and bars are profitable. Insiders say success depends on structuring a savvy deal and setting realistic expectations.
It becomes imperative then to use the daily deal to impress new customers and remind loyal customers of what makes your restaurant a standout in the first place. Here are eight ways to a better deal:
1. Be skeptical of sales promises. Jim Lappas, owner of fast-casual restaurant Fodrak’s Gyros & Ribs in Libertyville, Ill., says customers spent close to the minimum and were not new customers, contrary to what the daily deal site led him to believe.
2. Consider food costs. Higher food cost means it’s harder to come out ahead. Restaurants with lower food costs and more profitable items such as pizza, pasta or Chinese food could benefit more.
3. Focus on capturing new customers. Chef Marcus Guiliano of Aroma Thyme Bistro in Ellenville, N.Y., says to focus on getting new customers and then market deals directly.
4. Make tracking a priority. Beth Ward, office manager for Dilly Café in Cincinnati, says the best way to track deal redemption is to integrate the list of redeemed coupons into your POS system. This prevents customers from using it more than once.
5. Make sure customers leave happy. Unsatisfied daily deal diners can hurt your long-term reputation. A Boston University and Harvard University study analyzed Yelp reviews of merchants in 20 large cities before and after they ran a daily deal. Researchers found that “while the number of reviews increases significantly due to daily deals, average rating scores from reviewers who mention daily deals are 10 percent lower than scores of their peers on average.”
6. Time it right. Avoid busy seasons. Aim for slower months and days of the week.
7. Nix carry-out to allow for a bigger sale from dining in.
8. Remember the silver lining. Even if the deal didn’t work, its a nice reward for regular customers.
Cincinnati-based freelancer Paula Andruss writes for Entrepreneur, USA Today and other publications.