Good deal. But for whom?
Voucher websites can bring in customers. Restaurants hope to make them regulars.
Everybody loves a deal.
If that wasn’t clear before, the surge in popularity of websites such as Groupon, LivingSocial, and BuyWithMe has left no doubt. These businesses harness the purchasing power of groups to offer bargains at local restaurants, stores, spas, and many other places. More than 150,000 people in the Boston area receive BuyWithMe’s daily e-mail, for instance, according to Andrew Moss, its founder and chief strategy officer.
And no wonder the sites have caught on. LivingSocial has saved local members a total of $6.8 million since it entered the Boston market last March, says spokesperson Maire Griffin. About $500,000 of that was at restaurants. And Groupon has featured almost 400 Boston-area restaurant deals since launching here two years ago, saving local subscribers nearly $9 million, says spokesperson Kelsey O’Neill.
These numbers are big enough to have a real impact. Which is why restaurateurs aren’t always as enthusiastic about the swiftly multiplying sites.
Joanne Chang, who operates South End restaurant Myers + Chang and three branches of the bakery Flour, says she has been approached aggressively by many group-buying sites. She has yet to accept.
“These companies are making money off of restaurants that are nervous or low on cash and presenting it in a way that makes it sound like such an amazing deal for everyone,’’ Chang says. “In fact, restaurants are getting a fraction of what they need to actually make any money. And then these companies walk away with a nice check.’’
Restaurants operate on thin margins. An operator must carefully calibrate how much to charge for each dish, taking into account food, labor, rent, utilities, and other costs. If a deal offers $50 worth of food for $25, the business then shares that money with the group-buying site that arranged it. Share percentages vary, but a restaurant typically might wind up earning $12.50 instead of $50. (Last month, the Massachusetts Alcoholic Beverages Control Commission said Groupon was violating state law by discounting alcohol. Deals no longer apply to booze, which could mean higher takes for restaurants with liquor licenses.)
It’s not just that these deals aren’t financially sustainable, in Chang’s view. They’re demoralizing, she says. “I love a deal more than anybody else. But gosh, we spend so much time and energy and passion on what we do. Every restaurant tries to charge a price they think is fair based on what they put into it. Then to just give it away, it makes me sad. I don’t like feeling what we do is devalued.’’
Jason Waddleton runs The Haven, a Scottish restaurant in Jamaica Plain. Like Chang, he isn’t thrilled with the idea of restaurants sharing their take with group-buying sites. But he decided to try Groupon. “Do I agree with a Chicago-based company getting 25 percent of the money when you create the business? No, I don’t. If I wanted to work for a corporation, I would,’’ he says. “But I bit the bullet and did it. I take credit cards, too, and I give 2 percent to them. It kills my soul. But everybody takes credit cards.’’
Strategy matters, Waddleton says. At the end of March, he offered a Groupon of $15 for $30 worth of food. The Haven had just started offering lunch, and he wanted to get the word out. So his Groupon applies to lunch and brunch only. It runs from now into September, a period of time when business slows anyway. Groupon sold more than 1,300 of the deals. Waddleton expected last weekend to be extremely busy as a result.
“I’m just going to say, ‘Welcome to our busiest-ever brunch, and thanks for being part of it,’ ’’ he says. “We did it for the right reasons. I can’t afford to advertise. We have seen a lot of new people. That’s a good, positive thing. Is Groupon going to be the be-all-and-end-all bad thing some people are making it out as? It might be for some businesses, but not if you pick it for the right reasons.’’
But he wonders about the culture these group-buying sites may create. Will people simply start eating their way from deal to deal, never becoming repeat customers? “What is interesting are the Groupon phantoms, the one-hit wonders,’’ he says. “Groupon created customers solely in it for the deal. It’s not just Groupon’s fault, that’s the culture we live in. People wanted cheap mortgages. We’ll see the effects.’’
Group-buying sites say such concerns are unfounded. Griffin cites a LivingSocial survey that showed 50 percent of customers coming into restaurants because of the site are first-timers, and 87 percent of them plan to return. Also, they say, the deals do work on a financial level, because customers typically ring up higher tabs than their vouchers will cover. “From merchants, we have found on average that LivingSocial members spend a little more than $33 above voucher price,’’ Griffin says.
In January last year, BuyWithMe sold nearly 4,700 $50 vouchers for Sel de la Terre. The restaurant took in more than $16 for each one. The average bill at each table was about $70, Moss says. “They made tens of thousands on the promotion.’’ Sel de la Terre chef-owner Geoff Gardner says he enjoyed working with the company. “It’s a fun thing,’’ he says. “We’re always looking for something new and different to do, to put our name out there.’’
At any rate, the sites say, the main purpose of these deals is not to make money. It’s marketing. And unlike with an ad, businesses can see how many consumers their message is reaching.
“If you look at it like ‘I’m giving my product away at 25 percent,’ it’s not a viable thing to do,’’ says Andy Husbands, chef-owner of Tremont 647 in the South End, who has worked with Groupon. “If you look at it as marketing, you’re getting people to come see your restaurant. I would say most of them are not regular customers. I believe in my product. I put it out there, and hopefully you’re going to tell people and you’re going to return.’’
The trick is dealing with an onslaught of hungry voucher holders. “When you get hit so hard with so many people in the first couple of weeks, that’s a problem. You don’t want people walking away saying, ‘That place can’t handle the volume,’ ’’ he says.
Amrit Thakali ran into that issue when he offered a Groupon at Yak & Yeti, his Nepali restaurant in Somerville. “I want to make quality food in my restaurant,’’ he says. “We’re not going to precook. I don’t want to give them lesser food. I want to put in proper ingredients and spices.’’ His regular customers understand this, he says. To get good momos, Nepali dumplings, they must wait for his wife to make them. The Groupon customers are less patient and more likely to complain, he says.
“I understand, but I can do nothing when the online orders are coming at the same time, and we have to cook 120 or 150 entrees, and one entree takes 10 minutes,’’ he says. “I try to explain to them, but sometimes they don’t understand. I want to maintain my quality. I try to make my customers happy, but sometimes I can’t.’’
Will he offer another deal in the future? “The Groupon expires May 21,’’ Thakali says. “Let me see after that.’’
Devra First can be reached at email@example.com.