> Lots of businesses have excess capacity that costs them nothing to utilize.
I dispute this assertion or, in the very least, see this as being far more complex than you suggest, for two reasons:
1. Customers who might otherwise pay full price will end up using these deals, which is a direct loss to the business; and
2. The inventory may be used up by such offers to such an extent that customers who might otherwise pay full price may not be able to do so.
> The problem with groupon is that it has no moat.
On this point you are I agree.
As for being "win win", apart from the above, you have to look at a number of factors:
- Do Groupon customers return?
- What word-of-mouth do they give to businesses as a result?
- How much do they spend (initially and on repeat visits)?
- Are they people brought in by Groupon representative of your existing or desired customer base? There is plenty of anecdotal evidence suggestings "Grouponers" are "cheap" (both in spending habits and tips).
The "offer marketplace" providers (Groupon, LivingSocial or whoever) seem to be missing a golden opportunity to mine useful data here by tying an offer redemption to an actual person.
"Lots of businesses have excess capacity that costs them nothing to utilize"
Yes, This is one of the most dubious Groupon "sells".
There are a very small class of businesses that excess capacity which costs nothing to use. These mostly the type of business where you're just consuming an "experience" - adult classes, skydiving school, etc. Unfortunately, a big part of business, classes, is already competing with the Internet. And so the rest is skydiving schools, martial arts schools, and yoga schools, the few places where you just have to be there. But those are pretty marginal.
Restaurants certainly aren't in that class. Food is expensive. Food is a significant share of cost for anything but the most expensive restaurants. Sure, restaurants may throw food away each day BUT the only way to profit from that optimizing that is to sell food cheap on the contingency that its available. That's far from the Groupon model and clearly would "cheapen" the feel of any given restaurant.
I heard of a restaurant in France years ago that priced by the hour. That could actually cut waste to nearly zero - but it would destroy "the feeling of specialness" which many higher end restaurants cultivate.
Not really. Often, food is 30%, staff is 30%, rent is 30% and 10% goes to the owners (who are paying for a 300k fitout). Coffee markups can be even crazier. Obviously, it depends on the restaurant. A good value steak-house might sell a steak, chips, and veggies where the food costs 70% of the meal; but they have large volumes and hope to sell lots of drinks.
Anyway ... the staff and building sit idle for a lot of the time. On a Friday night, there's lots of people. But on a Tuesday at 4pm, there won't be a lot of customers.
I guess you could look for chefs that only wants to work from 11-2 and 5-8, Friday and Saturday, but most chefs want to work 5 days a week.
You sound very authoritative, but some of your numbers seem odd. Do you have a source for your 30% rent figure? Most sources I see suggest a much lower number: http://www.4hoteliers.com/4hots_fshw.php?mwi=1661
Sorry, you are right. The rent figure is for a cafe, and even that might be high. And I read it in an article from a cafe owner who lost his business. Maybe he was paying too much rent.
I'm not a restaurant guy but I am known to be able to read income statements with my eyes closed :)
Assuming the GP was generalizing "Rent" to include all expenses associated with the physical plant and presence, the sample income statement linked is close enough to that 30% number.
But your call on whether my assumption is too generous :)
A pan may be a fixed expense but it is to a significant-extend used up at the rate that people consume food, so it's not really "free" if fewer people are in the restaurant. Only "rent rent" and wages if fewer people in the restaurant.
Essentially, economies of scale might be possible in operating a restaurant but the place would need to be organized for this from the beginning - the simple ability to get people in the door is worth less than a large share of the receipts.
3. Most of the people redeeming Groupons will come at peak hours, so you still have excess capacity at slow hours. If Groupon Now (or something similar) catches on, that might solve the problem of excess capacity, but Groupon Classic does not.
This isn't true of all things, for example you have to make an appointment to get a haircut most places, and for things like rafting trips or overnight stays you always do.
Call me a redneck but I've never made an appointment to get a haircut in my life, and "rafting trips or overnight stays" are a pretty selective subset in my opinion.
Speaking from personal experience, the GP is correct. At my local climbing gym, the groupon special just brings in 30 extra new faces to the already crowded gym during peak hours. The slow times are just as slow as always.
They are now under-staffed during the peak hours (which get busier every time they offer a special) which means that the general state of the gym declines and the new customers just accept it because hey, they got a deal right?
It's a race to the bottom and I can see customers turning to businesses that focus on offering a great experience every day. Those businesses don't use groupon.
I dispute this assertion or, in the very least, see this as being far more complex than you suggest, for two reasons:
1. Customers who might otherwise pay full price will end up using these deals, which is a direct loss to the business; and
2. The inventory may be used up by such offers to such an extent that customers who might otherwise pay full price may not be able to do so.
> The problem with groupon is that it has no moat.
On this point you are I agree.
As for being "win win", apart from the above, you have to look at a number of factors:
- Do Groupon customers return?
- What word-of-mouth do they give to businesses as a result?
- How much do they spend (initially and on repeat visits)?
- Are they people brought in by Groupon representative of your existing or desired customer base? There is plenty of anecdotal evidence suggestings "Grouponers" are "cheap" (both in spending habits and tips).
The "offer marketplace" providers (Groupon, LivingSocial or whoever) seem to be missing a golden opportunity to mine useful data here by tying an offer redemption to an actual person.