The Groupon Effect

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I remember a few years back when people would post pictures of their newest purchases on Facebook and MySpace.  Their new car, watch, or house would be displayed for all to see and envy.  It was a subtle form of bragging intended to show their success and maybe even inspire jealousy in others.  They were proud of what they had bought and if pressed, they might even slip and tell you how much they paid for it.  The more expensive it was, the more it was worth bragging about.

Many of these same friends will still post on these same sites.  Today they share links to buy groupons to fancy restaurants and brag about the deal they found for their newest purchases.  “Extreme Couponing” has replaced watching “Lifestyles of the Rich and Famous”.  Finding a good deal is something to inspire envy in others.  The cheaper it was, the more it is worth bragging about.

I stop and wonder if we have become our own worst enemy.

For years we have worried about the “Wal-Mart Effect.”  This is the notion that large retailers offering imported goods with low profit margins would bankrupt small businesses and close manufacturing plants.  I don’t think this phenomenon can be disputed anymore.  The small business owners who were forced to close by these retailers cannot afford to shop anywhere else.  The factory workers who lost their jobs due to a lack of orders now wear blue smocks to support their families.  We have watched it occur and now we are attempting to help it spread to restaurants.

As restaurant guests buy groupons and other deals online to celebrate their special occasions at someplace new, they chip away at the profitability of small local restaurants.  These restaurants sign up for these programs to keep their staff employed and to market their restaurants.  They hope that if they can just get the guests to try their restaurant, repeat business has to come.  They have faith in their restaurant and the food they serve. They are sure they can succeed if only more people would pass through the doors.  The groupon bearing guests rave about the food and promise to return.

The next time these guests want to dine out, they again want to try someplace new.   They look to Groupon for a recommendation and a deal.  A new restaurateur has decided to take the same gamble.  They too are confident about their food.  The guests rave about this restaurant too.  The guests even return home to write about what a great deal they got on their incredible dinner on social networking sites. Their friends think to themselves, “I am going to have to try that place too next time they offer that deal.”

When the time comes that Groupon stops offering the deal or the guests decide to have an impromptu night out, they decide to go to the first restaurant again.  Only it has closed.  They drive to the second restaurant to find it is out of business as well.  They assume that it must be a bad year for the restaurant business.  They wonder why more people do not open quaint independent restaurants anymore as they drive to the nearest chain restaurant.  As they are seated they fail to notice that the managers that night are the owners of the restaurants they had dined at previously.

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About David Hayden

David Hayden is the creator of The Hospitality Formula Network, a series of websites dedicated to all aspects of the restaurant industry. He is also the author of the book Tips2: Tips For Improving Your Tips and Building Your Brand With Facebook.

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