Saturday, May 11, 2013

Rules for Coupons

Well, I'm on a roll regarding Food Service.  Coupons have been mentioned many times.  If you're a restaurateur or want to be one, here are a few things to consider IF, AND ONLY IF, you decide to have coupons.

Coupons can bring in more business

Electronic media coupons (including internet coupons) seem to do a better job than the print media coupons (Newspaper ads, door hangers, etc.).  People using the internet are able to quickly target the type of restaurant they want to dine at.  However, keep this deeply in mind ... the interweb people fall into three groups:  1) people looking for porn (55%), 2) people looking for free stuff (44.885%), and 3) people researching topics for their own edification (0.115%).  Guess which group will buy your electronic coupon.

Don't give away the store

You can give away profit, but don't be the one paying the costs of the meal or the restaurant's  overhead.  You have a right to remain in business and are absolutely under no obligation to go broke paying for any portion of a diner's meal.  Here's what I mean.  Let's say your average meal price (a.k.a. PPA) is $12.  For the typical restaurant, 25% of that $12 pays for the food; 25% for Labor, 25% for overhead (e.g. rent, utilities, etc.), and 25% is your profit.  So any coupons you offer should not be worth more than $3 per meal purchased.

How bad can this situation get?  I just saw an episode of Restaurant:  Impossible where the restaurant owners were paying off $10 coupons on $13 meals.  That means they were losing $6.75 off of every meal.  And there was a large stack of coupons.

Here are a few examples.

  1. O'Charley's coupons are almost universally "Get $5 off your meal if you spend $20 or more on dinner." The emphasis on 'or more' is mine.  It also emphasizes the 25% profit margin.  Also notice, that the diner must spend at least $20.  It's almost impossible to spend exactly $20; so O'Charley's is almost guaranteed to receive some amount of profit.
  2. "Buy one meal, get the next meal half off."  This is very popular.  50% of the equal or lesser valued meal will never be more than your profit margin.
  3. "Get an extra side item (usually a vegetable) if you purchase a dinner with a salad."

Don't forget any restrictions.

This is typically forgotten or glossed over.  Don't forget that YOUR COUPON IS A DEFACTO PUBLIC CONTRACT !!!!  Whatever it says and/or doesn't say is enforceable under the law.  So, any expectations you have of the guest must be included on that coupon.

I promise and swear that the diner will work around any coupon or try to maximize the benefits of any coupon.  For example, about a week ago, I detailed a guest who expected to use three coupons to get 9 meals for free.  And I mean she was REALLY hoping for free food.  Here are a few restrictions typical to the industry.
  1. ... of equal or lesser value ... :  as in "Buy one meal get the next meal of equal or lesser value for half off."  That's important.  Many (although not all) clients will order a meal for $30 and order a $7 appetizer as a meal, then expect you to comp $15 off the bill for the entrée.  Don't argue with me about the general goodness of mankind ... they will do this.  If you don't have this restriction, you'll be paying for lots of salmon and crab legs.
  2. Only one coupon per visit / alternately Not valid with any other offer:  Back to the lady with three coupons.  Our coupon clearly said "One coupon per visit."  This had to be pointed out to her over the phone.  Please note that, despite the plain English, she was still upset with us for the restriction.  What does that say about some peoples' character.
  3. ... when you purchase a drink or when you purchase two drinks:  as in, "Buy one meal get the next meal of equal or lesser value half off when you purchase two beverages."  Almost all guests will order water if this restriction is not listed.  But why does this limitation exist at all?  The not so little secret in the Food Biz is ... non-alcoholic beverages cost about $0.25 to $0.50 per glass depending on a few factors that I refuse to list here.  So, with this restriction, the restaurant can regain almost all the profit it lost giving you the discount on food.
  4. Does not include... :  This could be any exclusion although typical items on this list are taxes, gratuities, and alcohol.  In fact, you should probably have a reminder to tip the waiter based on the gross amount of the bill before the coupon is applied to the meal.  Alcohol is typically excluded because restaurants don't want to deal with someone who comes in just to drink booze (or get plastered).  That's a lawsuit waiting to happen.  And taxes?  The local mafia state always wants its cut (didn't Al Capone say that?).
  5. The expiration datefor the love of all that is holy in the universe, do not forget the expiration date.  A coupon without an expiration date can live on forever; even if you sell the restaurant.  On a more subtle point, an expiration date creates a small sense of urgency that will hopefully bring the guest in sooner - and sooner is always better.
  6. Get $5 off if you purchase $20 or more:  OK, it doesn't have to be $5 and $20.  You can pick any dollar amounts you like, just so long as the discount is not greater than your profit margin.  Out of all the coupons I've ever seen, I like this one the best - no holds barred.  As the owner, you make sure that you're at least breaking even.  And the customer is free to order anything he wants ... and can even come in by himself.

An alternative to Coupons:

Coupons cost money (even if it's just your profit).  But, some marketing beyond word-of-mouth is almost always necessary.  What to do?  Give this a shot:  don't print/offer coupons.  Instead, advertise regular deals.  My BBQ place did just that on at least one item.  If you purchased a full rack of ribs, you also got two pints of vegetables for free.  And yes, it brought in a lot of customers.  And yes, we still made a profit.

Your restaurant may need coupons for a variety of reasons:  it's the slow time of year, competition is fierce, you're new in town, or you're in a small town.  The list goes on.  But you can't let your marketing campaign drive you under.  No one wants to be a busy failure.  If you fallow the items listed above, you will be a busy success.


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