August 28, 2012
Only a year or two ago, deal-of-the-day promotions were the talk of the restaurant industry. Some operators embraced them as a go-to marketing device that could magically fill the dining room on slow nights. Others lamented that deals mainly brought in poor-tipping customers looking for one-off meals on the cheap.
Who was right? A new study of real-world daily deal promotions from Rice University professor and daily deal guru Utpal Dholakia finds deals can be a money-making marketing tactic for many businesses. Unfortunately, odds are your restaurant isn’t one of them.
He found that along with retailers, restaurants “have a more difficult time making daily deals work compared to other industries. Daily deals appear to function as sustainable marketing programs for only about a fifth of restaurant and bars that try them.”
For his research, Dholakia surveyed 641 small- and medium-sized businesses, 138 of them restaurants, about how well their daily deal promotions had worked.
His conclusion overall is that the deal industry itself is strong. “Our results find little or no evidence of deterioration in the performance of daily deal promotions over the past year for small and medium-sized businesses, or with experience as the business operator runs multiple daily deals. Rather, there is improvement in some metrics.”
However, restaurants were the second-worst performing industry he studied. Overall, 44 percent of deals run by restaurant and bars were profitable. That may be why restaurants are less likely than other businesses to stick with daily deal programs after trying them.
But maybe restaurants give up too quickly. Dholakia’s research found that fewer than half of all businesses show a profit the first time they offer a daily deal. But more than three-quarters make money from deals as they gain experience with them over time. Which is to say, if you go the daily deal route at your restaurant, try several different offers, and perhaps different purveyors, before you judge how well deals will work for you.
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