The year Groupon bit into profits

[XTREME1]

After two years of bleeding during the Great Recession, the local restaurant scene was upgraded to stable condition in 2010, but the past year also saw online “vultures” attack and new state legislation take a bite out of business.

The proliferation of daily-deal sites such as Groupon, LivingSocial and Eversave have helped consumers get up to half off at participating eateries, but some owners view them as the new scourge of the industry.

“They are deflationary weapons of mass destruction and are very, very dangerous for the restaurant industry to get involved in,” said Jeff Gates of Aquitaine Group. “I don’t think restaurants realize how challenging the bottom line is without giving half off to your customers. (They) lose track of what they’re giving away.”

None of Aquitaine Group’s six restaurants - including Aquitaine Bar a Vin Bistrot, Metropolis Cafe, Union Bar and Grill, and Gaslight Brasserie du Coin - offer the deals.

To Gates, the top restaurant story of the year is the proliferation of Groupon-type “vulture buying groups.”

The sites particularly strike a nerve with Gates because he’s hounded almost daily with their “flop sweat” marketing pitches.

“We won’t have anything to do with them, but it just amazes me how much they’re calling,” he said.

Free food is good for consumers, but for restaurants it can mean giving a prime seat at 8 p.m. on a Saturday night to a customer paying with a coupon.

“The restaurant business can’t afford to underwrite it all,” said Gates of Groupon and the others.

Restaurants also felt under siege from the state’s “gift ban” that prevents pharmaceutical and medical device manufacturers from paying for meals for health-care workers outside of their offices or hospitals.

Steve DiFillippo, CEO of Davio’s, lost 20 percent of his function business when the state enacted the ban in August 2009.

“You can’t just make that up,” said DiFillippo, who joined the Massachusetts Restaurant Association’s unsuccessful lobbying attempts to repeal the ban, a fight they’ll take up again next year. “That was a huge hit for us.”

But there was also plenty of good news last year. Restaurants generally rebounded after two challenging years that included the Wall Street meltdown and the loss of the corporate diner.

“There’s definitely an upswing in the restaurant scene compared to the last two years,” said Mark D’Alessandro, manager of Columbus Restaurant Group’s Mistral in Boston. “The business clientele are definitely back, and they’re asking for the big wines again. There seems to be a lot more confidence in the public about dining out.”

Richard Brackett of Towne Stove & Spirits and Scampo at the Liberty Hotel, both Lyons Group restaurants, agrees.

“People are ordering appetizers, people are ordering desserts, people are ordering after-dinner drinks,” Brackett said. “When people cut back, those were the first things to go.”

DiFillippo said a great Christmas brought business up overall into the low single digits compared with last year. Now, it’s all about the weather for the next three months, said DiFillippo.

“It’s all about the snow and when it comes,” he said. “Is it going to come on a Monday or Tuesday or a Friday or Saturday? This last storm was perfect.”

 

[Lee Stockwell]

Thanks Greg.

 

[Brian R]

Restaurants give things away all the time. Free appetizers, free drinks, free sides, free deserts.
This is just another way to get people into the restaurants.

I'm going to have to call BS on that article...even though I'm not in the biz...because even before Groupon, there were coupons in the local mailers everyday with half offs and free this when you buy that.

I think Groupon works best for restaurants. We tried 3 different restaurants in the area and know the owner of one. He says that Groupon increased his business instantly AND repeat business.

It's all how you look at it I guess.

I'll have to ask for the owner when we go back to the other ones...or if we buy more.




Still...thanks Greg for bringing it up.

 

[Royal Man]

Restaurants can be a better fit for Groupon than carpet cleaning for several differences:

Their costs are 25% on average.

Even with a 50 Discount they still are guaranteed a profit with a soft drink purchase. Add an other diner or two and an adult beverage or desert, even more guaranteed profit.

They have practically free labor (they work for tips) A coupon user may even tip more because of the discount.

With carpet cleaning a client may repeat once a year at best. With a restaurant it's not unusual to return several times a month once a client become familiar with the restaurant.


I can see why restaurants snatch up these Groupon offers. Restaurants have been giving away two for one offers for years to get client into the doors for the first time.

Now Groupon can broadcast the offers like never before.


Sounds like an easy sale for Groupon

 

[Brian R]

AND those tips to the server are going to be more than usual in my opinion...mine are..because you are paying less anyway.

So the server makes more money so he/she can pay more for the carpet cleaning job when they need it. shiteatinggrin



Little far fetched but you get the idea.

 

[XTREME1]

Being the Former President of a very successful restaurant group I need to say you guys shouldn't talk about stuff you do not know. Where the hell do you guys come up with stuff?

 

[Brian R]

Speaking with owners of restaurants

 

[XTREME1]

sure. You haven't a clue and I would stop pretending if I were you. That was my industry for 23yrs and that is how I made my money.

 

[XTREME1]

here is some of the basics after long research and consulting with a restaurant research group
this is one of the red flags
Key operating expenses too high relative to gross sales

Restaurant food & beverage purchases plus labor expenses (wages plus employer paid taxes and benefits) account for 65 to 70 cents of every dollar in restaurant sales. The combined total of these two cost categories, referred to as your restaurant’s “Prime Cost”, are where the battle for restaurant profitability is truly waged. This is not simply because they represent the largest percentage of your total expenses, but also because you have the ability to control them. Unlike utility and insurance expenses that are relatively fixed, you can directly impact your food cost percentage by more effective purchasing, product handling and menu pricing. Similarly, hiring practices, scheduling, and even the layout of your kitchen and the way your menu items are selected can favorably impact labor costs. The bottom line is this, when I see a restaurants Prime Cost percentage exceed 70%, a red flag is raised. Unless the restaurant can compensate for these higher costs by having, for example, a very favorable rent expense (e.g. less than 4% of sales) it is very difficult, and perhaps impossible, to be profitable. While we are on the subject of rent expense it is useful to point out that on a national basis a restaurant’s occupancy expense (this includes not only rent but also real estate taxes, property insurance and common area charges) is the single highest expense after its “Prime Costs”, and averages around 6% of sales. As a fixed expense the only way that you can reduce this ratio is to increase sales. When I see this number exceeding 8% of sales another red flag is raised. In this case I divide the restaurant’s annual occupancy cost by 6% to determine the sales level that will be required to keep occupancy expenses in line with industry norms.

I am very suprised that you guys claim to be businessmen and come out with the garbage you guys do

 

[Brian R]

I for one did not list numbers...I've heard that it's harder to run a restaurant business than any other...they tend to go under the first year.

This is about whether or not couponing will help the industry or not. Am I right?

 

[XTREME1]

I'm going to have to call BS on that article...even though I'm not in the biz...because even before Groupon, there were coupons in the local mailers everyday with half offs and free this when you buy that.

That is what you said but if you read the article the guy was pointing out you can not have half priced or less in the dining room on a weekend. If you read the fine print on the coupon you will see that it is usually mon - weds or lunch or buy 3 and get the fourth 1/2 off. Then you said it is BS. I took one small restaurant group from 1 restaurant to 3 and a cafe , concession company and catering. From about $900,000 a year to about $10,000,000. I never couponed anything because we wanted to be successful we didn't want to pay people to eat there.

Usually when you see half price at a restaurant they are stockpiling cash before they go under then they screw the suppliers

Groupon would be an excellent Masters economics study on what happened to the companies 2 and 3 yrs out

 

[Brian R]

Ok, I'll have to stop because I really don't know the industry...and I don't care to.

It just seems to me, if you can bring someone into your "store" to show them how great you are then hopefully they will be back again and again and with friends.

I see it as a great tool to get your name out there....even if they don't buy the Groupon, the Groupon email will have the name on it and possibly spark an interest.

A restaurant is probably going to expect to lose money the first year anyway...so why not lose it to that many new customers.