Groupon – A customer (victim) speaks out

300SquareI have received numerous responses by comment, email and call on my previous blog posting BUT this one struck me the most. Here it is, a real life South African restaurant experience… Take note!

With thanks to GeeKaySA who posted it…

I believe Mike mostly writes about the restaurant industry, and for restaurants, staff costs and utilities eat away a major part of your turnover, even more so with the ever increasing minimum wages, electricity and gas prices.  I agree with him that most restaurants will not benefit from running a Groupon (or similiar) deal, and I speak from experience.

We ran a Groupon deal the past three months.  The expiry date is tomorrow, and I cannot wait for the ordeal to be over.  Groupon’s commission was actually quoted at 50%, which means of the total normal selling price of the deal, 55% was promotional, 22.5% went to Groupon and 22.5% came to us.

Now that is some ways below the industry average to even cover your stock cost, but we really needed some marketing, and this seemed like a good targeted approach – i.e. you pay for what you get.  I was swayed by the salesperson’s nifty spreadsheet showing extra income from beverage sales, and future returns from returning customers.  I expected that, with the extra beverage spend we would at least be selling this deal at cost (and we’re just talking basic stock cost here, not overhead) and that we would increase awareness and attract some returning guests that have not been here before.

As the deal progressed, however, some more details emerged that made the whole thing a lot less palatable:

∙ First off, Groupon’s quoted commission percentage did not include VAT.  I know I should always read the fine print, but hey, I am rather busy running a business here.  Tack on the VAT, and Groupon now pockets 57% of the pittance we sold the vouchers for.  Or in other words, the restaurant’s income is now less than 20% of the normal price of the meals.

∙ Secondly, Groupon very glibly dodged all my enquiries about what happens to the money for the vouchers that are not used by the expiry date.  It’s pretty clear they intend to pocket all of that.

∙ Also, Mike is absolutely right in his prediction about the type of “customer” these deals attract.  A large proportion of the people who visited us with vouchers in hand ordered a glass of tap water with their meal, and didn’t tip the waiter a cent, even though they eagerly told the FOH staff “how lovely” their dining experience was.  Now the waiter’s tip makes no difference to our bottom line, but it’s a pretty sure indication that you’re not dealing with big spenders here.  I will never see them again unless I offer another break-the-bank deal.

∙ And lastly, if you’ve even got remotely good accounting & control procedures, don’t underestimate the extra admin time dealing with these vouchers will add to your process.

And to add insult to injury, I even had to deal with the following gem:

Guest books a table for Groupon voucher deal.  Guest arrives and meals are promptly served.  Guest notifies manager of hair found in meal.  Manager replaces meal (at no charge, of course) even though we are extremely strict about head covering AND the only person who got close to the meal in question with even half the length of hair as found in the meal is the guest himself.  (He had shoulder-length hair, the chefs, manager and waiter all have either short ethnic hair – I’m trying to be politically correct, please don’t flame – or short-cropped military-style hair.)  Guest essentially gets 3 meals for less than the price of one.  Thereafter the “guest” proceeds to write a negative review about the “hair in his food” in a website review.  Yes, all in all, this was a brilliant marketing exercise.

Stay far away from these deals, would be my advice.  It’s not worth the misery.

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