Restaurant Association Snapshot Survey
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- Opal Hutchinson
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1 Restaurant Association Snapshot Survey DAILY DEALS JUNE, 2012 I N A S N A P S H O T... Every day consumers are inundated with offers to their Inbox outlining the latest daily deal. A Nielsen Online Retail Report last year indicated that two thirds of online New Zealanders have received alerts from daily deal websites. And in the difficult economic conditions that we are (still) experiencing, many are tempted by the heavily discounted products and services available the Nielsen survey also reported that a further 40 percent had made a purchase from such sites in the past three months. Where does that leave hospitality businesses - who are already surviving on extremely slim profit margins and are also experiencing challenging trading conditions as a result of those same economic difficulties? A little over a year ago, only 16% of our member businesses had participated in a daily deal promotion for their business. The market has changed dramatically over the past 12 months however and many businesses, particularly those in the major centres, now feel they have to have a presence on these sites. Just under a third of businesses have now participated over the past 6 months. Predominantly though businesses have only used this marketing initiative once over that period of time. So participation is up, but opinion is definitely split on the value of these types of sites. There is a large percentage of business owners who believe that these sites promote an unsustainable business model which devalues an establishment s brand and endorses a discount mentality for a growing number of consumers. Others see it as a great cost-effective form of advertising which can be of value to the business if the offer is tailored correctly. It generates cash flow up front, although a short term injection, and creates the illusion of a full, profitable business. But at what expense? It feels as if this is rapidly getting entrenched in the market so if you don t do vouchers you will be missing out on a growing percentage of diners. It is easy to dismiss these diners from the side line as only voucher people yet it feels as if a lot of regular restaurant diners are now using vouchers. This is costing the industry a lot of money but as a business can we afford to turn away so many customers? Don t like it one little bit but can you afford not to do it? You just have to do smart deals that still make money in themselves, it is not there to get repeat customers. Restaurateur, Auckland For those deciding to take part in the daily deal experience, the website of choice is GrabOne, who dominate the market. 74% of the businesses who have used one of these sites have used GrabOne. GroupOn, which launched in May 2011 (a year after GrabOne) is well behind this. 19% have used GroupOn and 18% have used TreatMe (TradeMe s daily deal site). Of note though many of the businesses who had tried TreatMe and GroupOn had still also advertised through GrabOne. We know that the consumers love them, but how have businesses gauged the success of their involvement? Overall fairly positively; 36% indicated that for them the deal was moderately successful, another 31% reported that it was overall very successful and 10% were extremely happy with the results. We regard it as a great form of advertising. We have got so many new customers who came as a result of the deals that have continued to come back & some have become great regulars. Unlike newspaper & magazine advertising you know that these people actually make it to your restaurant as they have spent money. You then have your one chance to impress them. It is also very quantifiable as grab one reporting is great. Restaurant, Auckland While many businesses decry the type of customers that these daily deal offers bring, almost half have reported that they have noticed return custom as a result. Surprisingly 23% don t evaluate this factor surely one of the most important measures for involvement in this type of scheme? Return business does vary wildly, from 1% up to 50%. On average for those that convert these diners into regulars, the return custom is 15%. As long as it is structured so you break even on it and do not lose money should the people not spend any more than the value of the voucher (and in our case it is less than 5% that only spend the value on voucher) you have nothing to lose. Even if you get 20 new regular customers this is far better than any traditional form of printed advertising we have ever experienced. Restaurant, Auckland
2 Anecdotally we hear of businesses that have gone bust as a result of over subscription to their offer and that businesses that have used these promotions will never do so again. Is this really the case? Possibly: only 11% intend to advertise on a daily deal site over the next 6 months and of those almost all intend to do so only once. Those businesses that have yet to dip their toes into this form of marketing aren t really considering it for the future either. Only 4% of those operations signal their intention to participate with a daily deal offer in the next 6 months, with another 19% considering it. They may work for mass appeal places but not for the upmarket or 'special' business, because they attract bargain hunters who I think are looking for a deal and won't result in most cases, as a return patron. My strategy has been to decide where I position my business in the market and what type of cliental I wish to attract and 'daily deals' don't fit that. Café owner, Auckland One would wonder how these types of sites will evolve in the future. Supporting the opinions found in this survey, international research released by Rice University in the US last year claims that sites like GrabOne and GroupOn will have to settle for lower shares of revenues compared to their current levels, and that it will be harder and more expensive for them to find good candidates to fill the pipeline of daily deals. Their review, which looked at US businesses that undertook a daily deal promotion, found that 21.7 percent of customers never redeem the vouchers they ve paid for; 26.6 percent of businesses lost money and 17.9 percent broke even; very few users returned to purchase at full price; and 19.8 percent of businesses wouldn t do another promotion. However, for those supporters GrabOne and the associated websites, or those considering some involvement, here are some of the top tips provided by other Restaurant Association members. Read the fine print and be absolutely clear of the actual cost to your business. Be very aware of your costs, i.e. you start with a 50% discount, less GST (15%), less their commission, usually (20%). You are only left with 15% to pay, food cost, wages etc. If you do the math, you make very little, if anything at all. Our industry operates on very small margins. To give away 50% plus costs should be the "road to ruin", yet competitors seem to be happy to justify this as "It's an advertising cost" or "It's incremental business". I wonder what their accountants would say? From a marketing perspective they do bring "bums on seats", which may otherwise remain empty, but why give away so much? Do we really expect these bargain hunters to become loyal full-paying customers in future? I think that's naive! Restaurateur, Nelson Cap the number of vouchers that can be sold. Be specific about tailoring the deal for example use it to fill tables at quiet periods, restrict it to selected menu items, offer the deal for lunch, or early evening sittings, midweek... The devil is in the detail Make sure that you have your parameters set well and tight to offer only what you want to offer. Restaurant, Auckland Consider it as a marketing expense rather than advertising in other forms of media. Educate staff to encourage add-on purchases, it is important for you that these customers spend over the voucher limit. Typically the majority of discount diners see it as an opportunity to purchase more (an entree, dessert etc) rather than just two mains w one free. So we still generate a good per head. Auckland restaurant Monitor the return business offer a reason for those punters to return. We have had a great response and have carefully monitored the results - our fear was that we would simply get repeat customers - the reality is that between 60-70% of the customers have never been to the restaurant before - we average 2.2 customers per coupon. Launching a new product? Opening a new business? This could be a good way of generating some profile as the reach of these sites is huge. I am not expecting to make a profit when I am using a "daily deal" promotion but I find it a useful tool and cheap way to advertise or promote a new service within the business. Restaurant, Wellington SURVEYRESULTS 1 Have you participated in any Daily Deal websites over the past 6 months? Just under a third of businesses (32.4%) have participated in a daily deal promotion over the past 12 months so the majority are still choosing not to. However participation is on the increase this is up from 16% on the year previous. Predominantly businesses have only used this marketing initiative once over that period of time.
3 K E Y C O M M E N T S... My strategy has been to decide where I position my business in the market and what type of cliental I wish to attract and 'daily deals' don't fit that. Café Owner, Auckland 2 Which Daily Deal websites have you participated in? For those deciding to take part in the daily deal experience, the website of choice is GrabOne, who dominate the market. 74% of the businesses who have used one of these sites have used GrabOne. GroupOn, which launched in May 2011 (a year after GrabOne) is well behind this. 19% have used GroupOn and 17% have used TreatMe (TradeMe s daily deal site). Of note though many of the businesses who had tried TreatMe and GroupOn had still also advertised through GrabOne. * N O T E : p e r c e n t a g e s d o n o t a d d t o % a s s u r v e y r e s p o n d e n t s w e r e a b l e t o c h o o s e m u l t i p l e o p t i o n s 3 Do you consider your participation has been successful for your business? Overall businesses rate the experience fairly positively; 36% indicated that for them the deal was moderately successful, another 31% reported that it was overall very successful and 10% were extremely happy with the results.
4 K E Y C O M M E N TS... We look at the promotional cost (i.e. the Cost of Goods that relates to the discounted meal) as a marketing cost. Whilst the revenue generated offsets this cost we have found it minimal & unimportant whereas the profiling of the site to new customers (and their social circle) by way of a grand experience helpful. Restaurateur, Auckland In selling the vouchers you get the money up front, which is good for cash flow but then you have to supply the product over the next 3 months, so it has a sort of carrot and stick attraction. Would we do this again? Most likely, but with a lot more restrictions. Restaurateur, Auckland 4 Do you believe your participation has resulted in any of those Daily Deal customers becoming return (full paying) customers to the business? While many businesses decry the type of customers that these daily deal offers bring, almost half (48%) have reported that they have noticed return custom as a result. Somewhat surprisingly 23% don t evaluate this factor. Return business does vary wildly, from 1% up to 50%. On average for those that convert these diners into regulars, the return custom is 15%. Has participation resulted in return customers? Yes 48% No 29% We do not measure return visits 23% K E Y C O M M E N TS... T here is a down side risk that customers will only come if there are deals on offer - however our experience is that we get a lot of non-coupon repeat business and I attribute part of our 30% growth over the last 12 months to using daily deals. Restaurateur, Otago 5 Do you plan to participate in any "Daily Deal" websites over the coming 6 months? Only 11% intend to advertise on a daily deal site over the next 6 months and of those almost all intend to do so only once. Those businesses that have yet to dip their toes into this form of marketing aren t really considering it for the future either. Only 4% of those operations signal their intention to participate with a daily deal offer in the next 6 months, with another 19% considering it. K E Y C O M M E N TS... Have heard a lot of businesses that have used these promotions say they would not do it again. Am prepared to try one as the exposure is huge. I expect to not make any money out of the deal but it is still a very cheap form of marketing. Café Owner, Manawatu
5 REGIONAL ANALYSIS: Have you participated in a daily deal in past 6 months? Which ones? Was participation successful? Has it resulted in return customers? Do you plan to participate in a daily deal over next 6 months? AUCKLAND Yes 42% No 58% GrabOne 70% GroupOn 30% Treatme / Yazoon 15% 40% Yes 58% No 20% Don t measure 22% Yes 17% No 62% Maybe 11% BAY OF PLENTY / WAIKATO / ROTORUA Yes 23% No 71% GrabOne 83% Treatme 33% 50% Yes 17% No 33% Don t measure 50% Yes 7% No 73% Maybe 20% HAWKE S BAY / TARANAKI / MANAWATU Yes 14% No 86% GrabOne 100% successful 50% Yes 50% No 25% Don t measure 25% Yes 7% No 64% Maybe 29% REST OF NORTH ISLAND Yes 12% No 88% GrabOne 100% 1. Not very successful No 100% No 65% Maybe 35% WELLINGTON Yes 37% No 63% GrabOne 60% Treatme 30% GroupOn 20% successful 30% Yes 50% No 30% Don t measure 20% Yes 11% No 67% Maybe 22% CANTERBURY / UPPER SOUTH ISLAND Yes 26% No 74% GrabOne 100% Treatme 20% successful 40% Yes 40% No 60% Yes 9% No 14% Maybe 17% OTAGO / SOUTHLAND (INCLUDING STH LAKES) Yes 39% No 61% DailyDo / GrabOne 100% 60% Yes 33% No 50% Don t measure 17% Yes 6% No 59% Maybe 35% *Some regions have not been included, and others combined in regional breakdowns due to number of responses F I N A L C O M M E N TS... We have been approached numerous times by different companies to take up a daily deal promotion but have always chosen to decline as it doesn t appear to us to be a sound way to market our businesses. We don t have a lot of confidence that daily deal users are likely to become loyal long term customers, rather we presume that they are fickly diners, going where the next deal is. We would rather focus our energies on the customers that are loyal to us. Restaurateur, Auckland Restaurant Association of New Zealand PO Box 8287, Symonds Street. Auckland. Head Office, 45 Normanby Road, Mt Eden. Auckland Helpline phone: or Web: &
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