There are quite a few reviews on Yelp that indicate they had real problems with service, food quality, menu selection, and price. Their menu basically consists of expensive vegan hot-dogs and fairly generic sandwiches, which is a tough sell in Chicago when you have some very good food around for very cheap. It also seems like the owner is now backing away from any claims that it was Groupon which actually did him in.
If I had to speculate, it seems like the restaurant was likely faltering already, and the owner tried to attract new customers with some Groupon deals. It didn't end up generating the kind of revenue he had hoped, it didn't result in new returning customers, and the restaurant closed down. I think if you have a restaurant that is really great and you want to the word out, Groupon can be a real driving force in getting people in the door. However, if you cannot guarantee the kind of experience that is going to make them come back, and/or you are already walking a tight line financially, it might not be a good idea at all.
To be fair, Yelpers are an exceptionally tough crowd. I mean, I really don't know of any place offhand that is widely regarded as "good" in meatspace, anecdotally, that doesn't get savaged on Yelp. When I read Yelp reviews for a place, it's because I'm curious about the worst things that dickish, self-proclaimed connoisseurs have to say about it, not to get any real baseline for what the place is actually like. It's never even a tenth as bad as Yelp says it is.
Also, the owner mentioned utilising many different discount/coupon programs. Groupon may stand out because it's kind of emblematic, but there's no reason to think from anything that has been said that it was the majority of their coupon activity. Is there?
Their menu basically consists of expensive vegan
hot-dogs and fairly generic sandwiches, which is
a tough sell in Chicago when you have some very
good food around for very cheap.
I live down the street and went there about twice a month since they opened, and what you're saying isn't accurate. Drew's wasn't competing with your usual hot dog shop or fast food. There is a gigantic and extremely popular vegetarian/vegan niche market in Chicago, and that's the market Drew's was competing in. The food really was excellent and although from the menu things may have sounded "generic" in reality they really were not.
An interesting trend I've noticed with Groupon is that, at least in Chicago, it's a great way to kill your Yelp rating. The sudden surge in business tends to be much more than the business is really prepared to handle, and everything naturally suffers when that happens. Particularly in Groupon's hometown, where their high market penetration means they act as the engine behind a veritable tsunami of deal chasers that roves around the city, randomly swamping unsuspecting mom-and-pops and neighborhood holes-in-the-wall.
I used to be a regular customer at Drew's. But I have a habit of ceasing to go to restaurants for a month or two when I hear they did a Groupon. (Not out of protest or anything. It's just that flooding a place with Grouponers tends to make it a less pleasant place to eat.) I'm definitely not the only person I knew with that habit.
No doubt, it is sad for your friendly neighborhood restaurant to go out of business, but at the end of the day it is every owner / manager's responsibility to understand and own up to their pricing and discounting decisions. Of course if you'd offer to give up a dollar for a quarter (exact economics of a Groupon deal) you'll get swamped with takers and get ruined.
Groupon salesforce surely sold them stories on how great it is, but at the end of the day there is no excuse for not doing your own math. I suspect many "Groupon drove me out of business" stories are simply a way to blame someone for the overall business failure. Might as well say "it is due to economy" or "changing neighborhood demographics" or "to spend more time with family" or really anything.
EDIT: When I say "blame" I mean anything listed as a "reason". People often like to be indirect when they do the blaming.
According to a podcast I listened to once (can't remember the source but my best guess is Mixergy), the best way to utilize Groupon is to have a plan for customer retention and upselling. Not just attract a bunch of coupon-hunters who just want to get something for dimes on the dollar.
I believe the example they used in the podcast was sky diving. Lots of possibilities for retention ("get a rebate on your next jump if you sign up for membership") and up/cross-selling ("we have t-shirts").
> ...but at the end of the day there is no excuse for not doing your own math.
You're over simplifying it. Just about every merchant can understand that they are giving up a dollar for a quarter. They get that. What they don't understand, and what the hard sell is, is customer retention. Being sold on repeat customers that will drive revenues in the long term based off of a one-time loss lead (advertising cost).
One thing to keep in mind is that restaurants typically has pretty high fixed costs (rent, power, lights, a minimum number of staff), but moderate-to-low variable costs (food, extra staff). A hot dog - even a vegetarian hot dog - only costs a fraction of what a place like Drew's charges.
As others have pointed out, a GroupOn deal is usually going to be half off the normal price, and they take half of that, leaving 25% for the retailer. That actually is going to cover most (or for some places, all) of cost of the food.
Apparently, Drew's charged $3.69 for a basic beef hotdog (Applegate brand). You can buy them retail for maybe $0.70 each, which is less than 20% the total cost. The bun and condiments are negligible; if Drew's could avoid hiring too many extra staff to handle the GroupOn rush, and if the GroupOn customers were mostly new, and not all regular customers looking for a bargain (both big assumptions) they probably just about broke even on the deal, even getting only 25% of normal revenue per hotdog. Blaming GroupOn is tempting, and it might even be the straw that broke the camel's back, but it's not very plausible.
I truly hope local businesses will come to accept that a $5 for $10 deal, where the customer has to jump through some hoops to get it[1], is almost surly a terrible way of attracting new customers. Why would anyone want a customer who is willing to go through that hassle to save $5? I don't think it even takes math to realize this is a crazy promotion idea.
[1]: last I recall it was click through to purchase, login/enter credit card, wait a day, return to print
Why would anyone want a customer who is willing to go through that hassle to save $5?
My cheapest (and not frugal, actually cheap skates) friends are the ones who would jump through all sorts of hoops for a dollar. They are also the ones I'd never want as customers. It's odd to me that businesses don't recognize this.
They probably do recognize it, but it's easy to get flustered and forget things when you're dealing with someone who's trained in high-pressure sales tactics.
Drew set out to open an Eatery that was both sustainable & organic. Over the course of 3+ years and listening to his customers requests we expanded our menu to offer more vegan and gluten free options. Our latest menu is about 50% vegan and offers over 70% Gluten Free. Trying to keep up with our competitors we began working with the online deals (groupon, plum, kgb, living social, reward network, price bunch, and others) We soon realized that these deals are not what they seem but yet are silent killer and only build false hope. We accept full responsibility as nobody forced us into Groupon or any other deal. We stopped doing any future deals in October and had hoped we could recover, but it was too late.
I don't think so. He clearly realizes the problem lies with him and his business, but manages to blame someone else anyway. It doesn't just take realization. It takes action.
You have to realize that the fault lies with you and then you have to act on that realization. Seems he realized things were going sour, but his solution was to jump in with the daily deals sites, instead of fixing the real problem with his business.
You can use Groupon in one of two ways.
You can sell off excess inventory. In the case of a restaurant, this may mean running a "breakfast only" deal if most of your clientele comes in for lunch and dinner. Or you can run a "dinner only" if most of your customers are a breakfast and lunch crowd. There are other creative ways and I have truly seen "Groupon done well" in this way. You focus the Groupon customers to fill gaps.
The second way you can use Groupon is to temporarily keep your failing business afloat. If this is all you do, your business will fail. It'll just take longer. Groupon is like a credit card. They'll give you cash fast and you better use that cash to fix whatever is wrong with your business. If you simply sit on your ass and do daily deals, you're just delaying the inevitable. Don't blame Groupon, blame yourself for not fixing your business.
If your business isn't going well and you discount your prices and sell on mass, what exactly is meant to happen..
Would be good if the deal sites did some kind of business model check/chance of profiting check. But realistically it's not up to them and they can't understand a business owners business better than the actual owner.
The business owner is having one last give stuff away for free day...
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[ 3.2 ms ] story [ 46.4 ms ] threadIf I had to speculate, it seems like the restaurant was likely faltering already, and the owner tried to attract new customers with some Groupon deals. It didn't end up generating the kind of revenue he had hoped, it didn't result in new returning customers, and the restaurant closed down. I think if you have a restaurant that is really great and you want to the word out, Groupon can be a real driving force in getting people in the door. However, if you cannot guarantee the kind of experience that is going to make them come back, and/or you are already walking a tight line financially, it might not be a good idea at all.
Also, the owner mentioned utilising many different discount/coupon programs. Groupon may stand out because it's kind of emblematic, but there's no reason to think from anything that has been said that it was the majority of their coupon activity. Is there?
An interesting trend I've noticed with Groupon is that, at least in Chicago, it's a great way to kill your Yelp rating. The sudden surge in business tends to be much more than the business is really prepared to handle, and everything naturally suffers when that happens. Particularly in Groupon's hometown, where their high market penetration means they act as the engine behind a veritable tsunami of deal chasers that roves around the city, randomly swamping unsuspecting mom-and-pops and neighborhood holes-in-the-wall.
I used to be a regular customer at Drew's. But I have a habit of ceasing to go to restaurants for a month or two when I hear they did a Groupon. (Not out of protest or anything. It's just that flooding a place with Grouponers tends to make it a less pleasant place to eat.) I'm definitely not the only person I knew with that habit.
Groupon salesforce surely sold them stories on how great it is, but at the end of the day there is no excuse for not doing your own math. I suspect many "Groupon drove me out of business" stories are simply a way to blame someone for the overall business failure. Might as well say "it is due to economy" or "changing neighborhood demographics" or "to spend more time with family" or really anything.
EDIT: When I say "blame" I mean anything listed as a "reason". People often like to be indirect when they do the blaming.
I believe the example they used in the podcast was sky diving. Lots of possibilities for retention ("get a rebate on your next jump if you sign up for membership") and up/cross-selling ("we have t-shirts").
You're over simplifying it. Just about every merchant can understand that they are giving up a dollar for a quarter. They get that. What they don't understand, and what the hard sell is, is customer retention. Being sold on repeat customers that will drive revenues in the long term based off of a one-time loss lead (advertising cost).
As others have pointed out, a GroupOn deal is usually going to be half off the normal price, and they take half of that, leaving 25% for the retailer. That actually is going to cover most (or for some places, all) of cost of the food.
Apparently, Drew's charged $3.69 for a basic beef hotdog (Applegate brand). You can buy them retail for maybe $0.70 each, which is less than 20% the total cost. The bun and condiments are negligible; if Drew's could avoid hiring too many extra staff to handle the GroupOn rush, and if the GroupOn customers were mostly new, and not all regular customers looking for a bargain (both big assumptions) they probably just about broke even on the deal, even getting only 25% of normal revenue per hotdog. Blaming GroupOn is tempting, and it might even be the straw that broke the camel's back, but it's not very plausible.
[1]: last I recall it was click through to purchase, login/enter credit card, wait a day, return to print
My cheapest (and not frugal, actually cheap skates) friends are the ones who would jump through all sorts of hoops for a dollar. They are also the ones I'd never want as customers. It's odd to me that businesses don't recognize this.
* Drew's Closing Statement / 12.05.11
Drew's eatery: established in March of 2008.
Drew set out to open an Eatery that was both sustainable & organic. Over the course of 3+ years and listening to his customers requests we expanded our menu to offer more vegan and gluten free options. Our latest menu is about 50% vegan and offers over 70% Gluten Free. Trying to keep up with our competitors we began working with the online deals (groupon, plum, kgb, living social, reward network, price bunch, and others) We soon realized that these deals are not what they seem but yet are silent killer and only build false hope. We accept full responsibility as nobody forced us into Groupon or any other deal. We stopped doing any future deals in October and had hoped we could recover, but it was too late.
You have to realize that the fault lies with you and then you have to act on that realization. Seems he realized things were going sour, but his solution was to jump in with the daily deals sites, instead of fixing the real problem with his business.
You can use Groupon in one of two ways.
You can sell off excess inventory. In the case of a restaurant, this may mean running a "breakfast only" deal if most of your clientele comes in for lunch and dinner. Or you can run a "dinner only" if most of your customers are a breakfast and lunch crowd. There are other creative ways and I have truly seen "Groupon done well" in this way. You focus the Groupon customers to fill gaps.
The second way you can use Groupon is to temporarily keep your failing business afloat. If this is all you do, your business will fail. It'll just take longer. Groupon is like a credit card. They'll give you cash fast and you better use that cash to fix whatever is wrong with your business. If you simply sit on your ass and do daily deals, you're just delaying the inevitable. Don't blame Groupon, blame yourself for not fixing your business.
Would be good if the deal sites did some kind of business model check/chance of profiting check. But realistically it's not up to them and they can't understand a business owners business better than the actual owner.
The business owner is having one last give stuff away for free day...