An experience is twice the fun when it costs half the price, that’s why Groupon is so attractive for consumers. This online deal marketplace sells just about anything – goods, services, activities, travelling plans, etc. One of the most popular sector’s of Groupon is the restaurant business, as they sell coupons for restaurant meals at a discounted price. But how beneficial is it for restaurant owners to be featured on this page? Well, there are many pros and cons associated with this venture, let’s take a look!
Pro #1: Great marketing tool for restaurants to expand their customer base.
Groupon is a great promotional tool for small businesses that are looking to expand. Almost nothing can get new customers in the door like a discount can. Restaurants then have the opportunity to turn these coupon redeemers into more profitable repeat customers. Oftentimes, these individuals purchase additional items on top of what the coupon covers and, most importantly, they can become repeat customers.
Con #1: This advertising comes at a steep price.
The Groupon customers demand slashed prices, so usually restaurant meals are offered for 50% of the price they normally would be sold. This significantly reduces the revenue earned for the restaurant. But then, Groupon must take their share. They charge around a 50% commission for their advertisement and promotion of the offer. This leaves restaurants with merely 25% of the revenue they would earn from a normal sale. In addition, the restaurants are still responsible for paying the credit card processing fees associated with these orders.
Pro #2: Restaurants are able to personalize their deals.
Restaurant owners are able to personalize how they interact and sell to customers over Groupon. Campaigns can be designed to reach a ton of new customers in a short period of time, or the offer can be on-going, running month to month. In any case, restaurant owners are able to set their own cap on the amount of coupons sold. In addition, they can set a minimum amount of coupons that must be sold in order to make the promotion valid.
Con #2: Enduring a traffic surge before the expiration date.
Customers don’t want to let their coupons expire, but this could mean bad news for restaurant owners. Restaurants may experience a traffic surge as customers rush to claim their meals before the expiration date. This could take tables away from more profitable customers if a restaurant is filled with coupon redeemers. In addition, it can lead to an unexpected level of demand that the restaurant is not used to satisfying, leading to problems with inventory and employee shortages.
Pro #3: Access to Merchant Mobile App.
Businesses working with Groupon can download the Groupon Merchants Mobile App. With this app, merchants can redeem vouchers, track sales, keep up to date on the success of their promotions, and accept credit card payments. Groupon Payments advertises no subscription fee and a low cost credit card processing fees of 1.99% + $0.15 per swipe.
What is the impact on Cash Flows?
Groupon has organized its payment method to first collect the sales revenue from customers and then pay its restaurant partners via an ACH payment or a check. The total amount they receive is equal to the revenue less the Groupon commission fee. The merchants are paid in three separate payments. The first payment is received as soon as the restaurant campaign ends and the remaining two payments are sent out in 30 day increments. The first two payments are equal to 33% of the total deposit. But the third payment could be slightly different as Groupon uses this payment to reconcile any refunds or additional units sold through “Private Sale” (which allows select customers to buy coupons up to 60 days after a campaign ends).
So how should a restaurant account for these payments in their books and POS System. We will use an example to illustrate how a restaurant should account for 1 out of 3 of the payments received.
Advertisements on Groupon won’t lead to a huge profit for restaurants, but it should be seen as an investment. These coupons can be a successful promotional tool and spark excitement about the restaurant within the community. For restaurants looking to quickly increase their cash on hand, this is probably not the solution, but it is successful at bringing new customers in the door!
