Are coupons, discounts, and working with companies like Groupon to attract more customers good for the long term strategy of running a restaurant business?
This is a complicated question that has a long answer. I can be good, but it can also be bad for the long-term health of your business because it trains consumers to buy your product when it contains a discount. Some people only show up for the Groupon once, and never come again. There is also a perception out there that a business that used Groupon is a dying business. “They must be desperate”, they can say. You have to consider how you look in the eyes of not just your customers but the general public as well. Running a long discount campaign can definitely give your brand a blue eye in the perception of consumers if you’re not careful.
Let’s dig a little deeper and see which coupons work, which do not, and what you should never do as a business. You should never do coupons consistently. There are many big name fast food chains that do this through the mail. They use coupons for “buy one get one free” burgers, free fries, free drinks, and free sides. The problem with this is you are creating a habit in your customers to only shop with you when there is a discount. Consistent discounting works with business like Bed Bath and Beyond, Sears, and Best Buy because these are big box retailers that already have huge mark ups on many products. You are getting a discount, but even with your discount you are spending a lot of money, typically over $250. I just used a 10% off everything coupon at Bed Bath and Beyond. Now do I ever shop there without a coupon? Yes but every time I do I feel like I am cheating myself or being irresponsible. Bed, Bath and Beyond makes sure to send me a coupon every few months or so. You can hold on to these coupons, combine coupons, and some of their locations even honor expired coupons if you give them some kind of explanation as to why you weren’t able to use it sooner.
So you see they have condition their customers to use these coupons, and to feel a sense of guilt sometimes when there is no coupon. I did end up spending $285, however the sales clerk told me because of the coupon and other store discounts (they were closing the store at the Beverly Center so there was a clearance on a few of the items as well…) I saved a total of $65. $65 is pretty remarkable. You can get a new Xbox game or PS4 game with $65, you can buy a few DVD’s or Bluray movies you always wanted, or catch up on your summer reading list. The point is we love these coupons at these huge retailers and we expect to use them almost every time we go.
Now if you have ever owned a restaurant or bar you know our profit margins are already razor thin. Any discount, free item, or any other value added proposition has to be very well calculated and short-term. It’s OK to use these promotions to bring people through the door, gain new customers, or in the first few months after the grand opening of your restaurant. These are special occasions, and a discount can be warranted by the fact that these new customers can possibly be kept long-term. “Let me just get them in the door, taste our delicious product, and when they just see for themselves how awesome and different we are from the competition, they will be sold!” Does that really happen though? Do we get to keep the customers we made or are many people opportunists that come only during promotion and you never see them again?
When I did the “Customer Appreciation Days” at Zankou Chicken in honor of our 50th anniversary in 2012 and 2013, we got dozens of new faces coming in. I did an entire list of promotions. We had a whole chicken for $5, which is pretty much the cost for us to make it if you include the pita bread and garlic sauce. We were basically taking a huge hit in terms of profits for those two hours we were doing the promotion, from 3pm-5 pm.
We agreed to do it on off days like Tuesdays and Thursdays, but I also urged to do it on Saturdays and Sundays because many customers told me they had work and couldn’t take advantage of the Customer Appreciation Days because they simply couldn’t get off work early or make it in that 2 hour window. But we couldn’t do it at lunch because then it would interfere with the busy lunch crowd. These were the busy executives, families, and often huge clients like Disney and Fox Sports that make huge orders during lunch. They were high paying clients, and these are all customers and individuals who were happily paying full price. I didn’t want their dining experience to be interfered by the huge promotion, or that them having to wait longer than necessary to get their to-go orders. You have to remember, these customers don’t care about promotions. They are serious business people that are non-nonsense, they want healthy, delicious, hot food and they want it fast because they are paying full price for it. This is in direct contrast to the discount-driven consumer who is willing to wait in 25 minute long lines, get their $5 discount, and wait another 15 minutes. They usually ask for extra bread, extra garlic sauce, extra whatever is available.
It was a very exciting time, because so many people came that the line was literally out the door in Glendale. In Pasadena the lines stretched out and behind, through the hallway and almost to the bathroom. It was ridiculously busy, and the “Black Friday” -like atmosphere really energized all of us. It was fun, exciting, and really got the word out about Zankou Chicken to hundreds, maybe thousands of new people. But was it profitable for the long term? I honestly don’t know. I can tell you this: it made thousands of dollars an hour and we broke multiple sales records for every day we had a Customer Appreciation Day. But the sales numbers may be a bit misleading because the values were so high for the customer that it ate into profit margins. But making a profit wasn’t even the point. I really wanted customers to feel appreciated. I also wanted to use it as an opportunity to bring some new people in, hopefully friends and family of these customers.
Word of mouth went through the roof. Our social media was blowing up with new adds, new faces, and so many shares on Facebook and Twitter about the Customer Appreciation Days. People were sharing with families and friends, particularly with people that were down and out, and could really use the discount. I thought this was an added bonus and something I hadn’t thought of, since the economy was so bad we had so many poor families taking advantage of a rare situation: an opportunity to feed their family good food. Deep down that was spiritually rewarding for me. I had made the coupon to look like a $5 bill, and people found it so much fun to keep in their wallets and pass around. I purposefully designed it to not only be beautiful and fun to look at but easy to use.
I remember seeing so many faces, and many of them were faces and people I had never seen before. Maybe they heard about the discounts because they were so significant. For example the whole chicken is usually over $10, and here we were selling it for 5 bucks. Remember that in Los Angeles, 5 dollars usually doesn’t buy you anything more than a gourmet cup of coffee, whereas here they were getting not only delicious, healthy food, but there was enough of it to feed an entire family. The unintended consequences of this was that there were so many groups of people, so many families that came for the first time, and after the promotion I never saw them again. The line reminded me of the long, crazy lines at the DMV. A few fights even broke out in line with angry customers, people cutting in line, and people becoming inpatient. If you combine hungry people with low blood sugar levels and an unbeatable discount partnered with a limited time offer, it can turn pretty ugly very fast. I made sure to redouble our efforts, I personally helped maintain the lines, and we had up to 6 cashiers and a beefed up kitchen staff to make sure to keep up with demand.
Thank God a physical fight never broke out, but there were some stressful moments. It wasn’t about quality or brand anymore, it was purely about the discount. Was this really a customer appreciation day? Or was it a bunch of strangers taking advantage of a rare, blue moon discount we had not done in 50 years? It was a difficult question for me to answer. But I can say for sure our morale was up, we were super energized, and we all had a blast. For that alone it was worth doing for me. Would we ever do it again? If the rest of my team agrees, sure I would do it again. I would love to, but I imagine the next one to be more organized with more reasonable discounts that are more manageable.