Daily Deals
Around 9:30 on a Saturday morning in September, the weekend rush for sandwiches at the Italian deli/grocery store Trinacria on Paca Street hasn’t yet started. I meander through stacks of canned tomatoes and racks of wine, past refrigerated cases stocked with fresh pasta and sauces, to the fresh-baked bread. I choose one with garlic and herbs and one with whole black olives, both still warm from the oven. This place is an embarrassment of culinary riches— fresh mozzarella, tapenade, roasted red peppers— and right now I’m like a kid in a candy store.
Or, to be more precise, an adult with a Groupon.
For the uninitiated, Groupon (a mashup of “group” and “coupon”) is a thrifty consumer’s dream. Every day, Groupon— and a host of other companies like it, including LivingSocial, AmazonLocal and Google Offers— sends an email or text to subscribers offering a deep discount (purportedly as high as 90 percent off) on goods, services or events in their area.
Groupon gets a cut of what consumers pay, usually 50 percent. That means that of the $5 I paid for the Trinacria Groupon (which entitles me to $10 worth of goodies), Groupon takes $2.50, leaving Trinacria with $2.50. That’s before I purchase anything, however. I end up adding a bottle of wine and a box of pizzelle cookies to the two bread loaves. Grand total: $13. The man at the register takes my printed-out Groupon and scans the bar code with his smartphone to mark it “used.” I fork over the $3 balance and leave, feeling like I’ve gotten a great deal.
But has Trinacria?
Daily deal services like Groupon are clearly a boon for consumers, who get both a discount and an excuse to go out for a treat. Since its launch in late 2008, Groupon has grown to 115 million subscribers worldwide, saving consumers an estimated $2 billion so far. Who’s using them? People like 30-year-old Hampden resident Abby Markoe, who jumped at the February 2011 Groupon for Corks in Federal Hill, which she used on one of her weekly dinner dates with a friend. “It makes me go out more than I probably should in terms of spending money,” says Markoe. “But then you’re getting a 50 percent discount, so why not go and try this fancy restaurant you’ve heard about on the radio?”
And people like Bonnie Bradley, a 52-year-old nurse at Johns Hopkins who is a self-described Groupon addict. One weekend, she and her husband used a Groupon to eat at downtown Italian restaurant Ciao Bella on Friday night and another Groupon at Alewife on the Westside on Saturday night. “It makes you try places that you’ve thought about but haven’t actually gone,” she says. “About every weekend we use at least one. It’s like a little date.”
But for small and medium-sized businesses, Groupon and other daily deal services are a double-edged sword. They provide cheap, instant advertising that can result in an immediate increase in traffic. The hitch is, unless Grouponers spend more money than they might normally, or become regular customers who buy full-price items, businesses don’t always come out on top.
Vince Fava, owner of Trinacria, hasn’t done the math yet on Trinacria’s two Groupons, the one I bought this year and one that ran earlier in April 2010. “I thought maybe some [of the people on Groupon’s subscriber list] didn’t know me and would come into my store to check me out,” he says. “I did get some of those, and I got some of the people who used to shop here before and forgot about me.”
Fava says some people do spend a bit more, like I did, but others spend exactly the amount of their Groupon. It’s worth noting that, even though I really like Trinacria, I hadn’t been there in a couple of years before I made the trip with my Groupon. “It brings in the people,” Fava admits, “but you have to decide whether it’s worth it or not. ... I don’t have any specific numbers, but maybe I got a little bit ahead because a few people did come in, did buy a little extra. I guess it evens itself out.” Fava says he may consider doing another promotion if he can negotiate with Groupon or a similar service to take a smaller cut of the offer price. He’s also considering a Groupon Now! offer, which confines the redemption period to just a few hours.
Of all the businesses that participate in daily deal services, restaurants generally fare the worst, according to a study by Rice University professor Utpal M. Dholakia that was released in June. Dholakia researched the performance of Groupon, LivingSocial and three other daily deal sites in 23 U.S. markets and discovered that only about 43 percent of restaurants made money on their promotion, and just under 40 percent planned to run another in the future.
Groupon, for its part, quibbles with the study, saying that because it only collected data during the three months after the promotion, it missed revenue the resturants would have earned throughout the remaining months the deal ran. Further, says Groupon director of communications Julie Mossler, Groupon doesn’t promise restaurants they’ll make money overnight. “We’re really about exposure and bringing the ‘right’ customers in— college-educated and with money to spend,” she says.
In January, Alewife ran a $20-for-$40 Groupon (as well as a $10-for-$20 lunch deal) and a $20-for-$40 dinner deal with LivingSocial, that were meant to draw customers to the recently opened bar/restaurant. Co-owner Bryan Palombo says in that sense the coupons were a success— new patrons did come, and some spent significantly more than the amount of their coupon and made return visits.
But overall, the experience was bumpy. Some customers refused to come back after they weren’t allowed to redeem their Groupon during happy hour. And Alewife had to haggle with Groupon to get its share of the deal’s revenue (which the restaurant eventually did). Alewife sold $40,000 worth of Groupons and basically broke even, Palombo says. But he’s decided the only way Alewife will do another Groupon is if the company agrees to a radically different deal: a 90/10 split, with Groupon taking only 10 percent (instead of the typical 50 percent). “I see the value of it for a new business or if you should need immediate income to get through a hard time. [But] if you’re doing well, there’s no point.”
Jay Taramani, general manager at Christopher Daniel in Timonium, echoes many of Palombo’s sentiments. “I think it’s a great deal for the consumer, but from our end, I think you need to be very careful with the way you set up your deal,” he says. Christopher Daniel offered a two-option Groupon in March— $10-for-$20 at lunch or $20-for-$40 at dinner. Unlike Alewife’s Groupon, Christopher Daniel’s didn’t specify that it wouldn’t be accepted at the bar or during Sunday brunch. Some customers have been unpleasantly surprised by that news. (It helps that Groupon allows dissatisfied buyers to return their coupon, even if it’s been used, for a refund.)
Taramani estimates that about half the Groupon users spend more than they might normally, but the other half spends only $20 (and are sometimes dismayed to find that they still have to pay tax on a $19.95 bill). In the end, he says he doubts Christopher Daniel will try Groupon again. “Does it bring business in? Yes. Does it generate a cash flow to a point? Yes. Are there other ways you could bring people in? Yes.”
In addition, the waitstaff bears the brunt of Groupon use, especially when patrons don’t know the rules. One server at Gertrude’s, who asked that her name not be used, says the problem revolves around tipping. Gertrude’s sold about 2,100 Groupons last August that were a $20-for-$45 deal at dinner. Not all the customers who came in to use them knew they should tip on the pre-discount total of their bill (or, for that matter, that they should alert servers to their Groupon before ordering). “When your total income depends on tips, it affects you and your spirit,” the server says. “I use Groupons, and I’m a server. ... I think Groupon is a great way to expand your experience in a city. [But] I wish it was something that customers understood better.”
For Tony Foreman, half of the Fore-man Wolf team that owns four acclaimed restaurants around the city, the decision is easy: “I don’t believe in any way, shape or form in discount programs.” In his opinion, discounts equal artificially inflated prices. “The entire [restaurant] experience is built up of thousands of little transactions between farmers and wine growers and merchants and cheesemakers, and me training the staff and buying linens from places all over the country, and so on and so on. Should I just mark that up so I can discount it back? I don’t think so.”
Other restaurant owners don’t want to create the expectation that there will always be a discount, or that the only time people should patronize a restaurant is when there’s a deal on offer. “From everything I’ve read, and it could have changed by now, I think you’re getting people who want a deal. ... The next place they’re going to eat is going to be the next Groupon,” says Alan Hirsch, co-owner of Donna’s Cafe, which has locations in Cross Keys, Charles Village and Columbia. So far, Donna’s has not participated in any daily deal promotions, though, Hirsch allows that, come winter when business slows a bit, he might revisit the topic. “I just don’t think discounting your product is a successful way to run a business. You get a complete meal here for $25 to $30, and it’s really good. There’s not a lot of room to discount that.”
It certainly doesn’t hurt that Donna’s has been a fixture in and around Baltimore for nearly 20 years and doesn’t have as strong a need to draw in patrons as newer joints might. For Joss Cafe and Sushi Bar, however, it’s a different story. The owners turned to LivingSocial to drive business to their new Baltimore location after finding that advertising in traditional print venues and inside their Annapolis location, which has existed for 21 years, didn’t bring in the volume of customers they’d hoped for. On Labor Day weekend, general manager Heather Lee said the $15-for-$30 LivingSocial deal, which was offered the last week of August, had already translated into significantly more traffic in the Mount Vernon location. Lee hopes word of mouth, which she says is usually the best way for sushi restaurants to draw diners, will pay off. “[The LivingSocial deal] got [customers] in here. And if they say something positive to someone else, who knows? Maybe they’ll try it.”
As for me, I’m not eager to buy any more Groupons for now— I’m a little bitter that one I bought for a kayaking expedition expired before I could use it. But I am looking forward to going back to Trinacria, and getting more of that bread.
Marianne Amoss is a local writer.
