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The Dish on the Daily Deal

The Dish on the Daily Deal. What’s Your Take?.

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The Dish on the Daily Deal

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  1. The Dish on the Daily Deal What’s Your Take?

  2. Mark Brandau has spent his entire career with Nation’s Restaurant News, beginning on the copy edit desk in 2005 and moving to the Chicago office in 2009 to assume full-time writing duties, covering Midwestern chains and marketing and advertising. He holds journalism degrees from Columbia University and Northwestern University, where he also teaches an undergraduate course in magazine editing. He lives in suburban Chicago with wife Allison and 18-month-old daughter, Cameron, and 3-month-old son, Luke. God help him.

  3. Ryan Zink is Senior Vice President of Finance for F&H Acquisition Corp., a restaurant holding company that owns the Fox and Hound and Champps restaurant concepts.  He has previously served in progressive management roles including Manager of Accounting and Director of information Technology since joining the company in 2000.  Between 1999 and 2000, Ryan served in staff auditing roles with the professional services firm KPMG LLP. 

  4. Mike is the Founder and Chief Energizing Officer of BrandIQ, the only brand strategy and research consultancy that takes the right learning and makes it relevant to solve the toughest business challenges. Mike is a veteran marketing professional. His distinguished marketing career includes brand management positions with PepsiCo (Pizza Hut), the Dial Corporation, and CMO for Papa Gino’s restaurants. He also created, owned and operated his own award-winning restaurant in the Boston area. Mike holds a BA in Finance from Iowa State University and an MBA from the University of Phoenix. He is a member of the Entrepreneurs Organization (EO) and past board member for EO and the Kauffmann Center for Entrepreneurial Leadership. He is a frequent speaker on innovation, brand strategy and new product development. He is a guest lecturer on brand strategy in the California State University system and lives in Los Angeles.

  5. The Dish on the Daily Deal Mark Brandau @Mark_from_NRN NATION’S RESTAURANT NEWS

  6. In the beginning, there was Groupon • Groupon sells its first daily deal in 2008 • $30 million in revenue in 2009 • $713 million in revenue in 2010 • $568 million in 2ndquarter of 2012 alone • Once “daily deal” is defined, competitors like LivingSocial, LocalEats, Blackboard Eats rise • Groupon raises $700 million in Nov. 2011 IPO

  7. Consumers love them, but operators… • Operators bemoan lack of control over how many vouchers get downloaded and when they’re redeemed, making deal unpredictable • Unsustainable rush of traffic frustrated staff • People showing up are coupon chasers, or, worse, regulars paying less on one of their normally frequent visits • Owners forgo half the revenue off the bat, then still split proceeds with Groupon

  8. Posies goes viral • Portland, Ore., restaurant Posies Bakery & Café, burned by a Groupon deal, writes widely shared blog post in 2010 • Dealing with fallout of $13 for $6 Groupon deal for months, ends up losing $8,000 and paying out of pocket

  9. Yet, consumers still love these deals • 75% of consumers surveyed by Technomic this past summer were aware of daily deal sites, and of those, 53% subscribe to at least one • 84% to Groupon • 46% to LivingSocial • 34% to Restaurant.com • 25% to Facebook Offers • 90% have bought a deal in the past month

  10. Deal users are unique visitors • 24% used deal at restaurant they regularly visit • 30% used at restaurant they occasionally visit • 22% used at restaurant they’d visited just once • 24% used at restaurant they’d never visited • 11% used at restaurant they’d never heard of

  11. But they’re surprisingly loyal (they say) • 83% of first-time customers brought in by a daily deal have recommended that eatery to a friend or family member • 67% returned later without a daily deal

  12. 59% agree: “When I use a daily deal, I spend more money beyond the value of the deal.” • 65% agree: “I am more interested in restaurant daily deals than I am in other types of deals (travel, spas, fashion, etc.).” • 79% agree: “I look forward to seeing those daily-deal emails every day.” Source: Technomic Inc.

  13. Groupon starts to evolve • In May 2011, they release Groupon Now, which lets the merchants determine how many vouchers get released, and when they can be redeemed. • In May 2012, the roll out Groupon Rewards, which acts as a loyalty program, managed by Groupon, using the consumers’ credit cards linked to their accounts

  14. Groupon and 30-unit Sonic franchisee in Phoenix Feb. 2012, franchisee teams up with Groupon and OLO to offer $10 for $5, or $15 for $7, to promote trial for online ordering platform in test. No incremental costs beyond incremental food cost “Success!”

  15. AJ Bombers uses Facebook Offers In May, AJ Bombers Madison runs Facebook Offer for existing $1 Burger Night on Tuesday. It’s targeted, going just to their fans, but spreading to their friends. 1,700 likes to begin with; gets 1,200 downloads Went on a wait for Tuesday Sales up 50% from previous week’s $1 Burger Night Likes increased 5%, total weekly reach shot up from 10,000 to 170,000 EdgeRank score shot way up Used to be free; Facebook now charges you about $5 in ads

  16. Starbucks, LivingSocial crush it In September, LivingSocial sells 1.5 million $10 Starbucks gift cards. Gift cards have abounce back feature because $10 is higher than the average check Record for number of vouchers sold For comparison, in 2011, LivingSocial sold more than 290,000 vouchers for 5 Big Macs and fries at McDonald’s, which was No. 7 on Yipit’s list

  17. Where’s it going? • Big guys getting bigger and diversifying through acquisition or partnerships • Groupon launched Groupon Payments, then acquired tablet-based POS provider Breadcrumb • LivingSocial and Chase teaming up to offer customers LivingSocial Rewards Visa Cards • Smaller players chipping away • Guys like LevelUp and Punchh on mobile loyalty • Womply gives automatic rebates to linked cards

  18. Ryan M. Zink, Senior Vice President of Finance F&H Acquisition Corp.

  19. F&H Acquisition Corp. • Privately-owned restaurant holding company with a focus in concepts with a high-alcohol mix • Maintain separate operating companies while leveraging shared services • Purchased Fox & Hound Restaurant Group in 2006 • Currently 80 units with an approximate 70% alcohol mix • $2MM average unit volume • Unpretentious bar with wide range of national and local beers • Purchased Champps Entertainment in 2007 • Currently 45 company-owned units with ~30% alcohol mix • $3.2MM average unit volume • Polished sports bar with chef-prepared, from-scratch menu

  20. Our First Deal(s) – June 2011 • Why did we run the deals? • Pressure from our owners/board • Daily deal / group buy sites had buzz, particularly Groupon with its then-upcoming IPO • F&H had run a test in two markets in April 2011 with promising results • Like gift cards, it generates something accountants call “deferred revenue”

  21. Construction of the Deal • The deal will require a 50% discount • But won’t require a specific dollar amount • We chose a $20 deal value with $10 price • The deal can be done for better than a 50/50 split on the commission • Choosing date and day of week for feature will affect total voucher sales • Now required to contractually agree to honor vouchers for 5 years or forever (CARD Act)

  22. Was the deal successful? Fox & HoundProfitability Model • System-wide campaign • 28,911 purchased • 23,387 redeemed • $31.72 gross spend • $741,725 gross sales • $40,000 deferred revenue • +$138,000 cash flow($1,642 per store ave.)

  23. Running a Deal in a More Polished Concept • We also used Groupon at Champps in June 2011 • Ran in about 25% of our markets • Challenged in managing our brand’s image with Groupon’s editorial voice • Financially successful, even more than F&H on a per-store basis • Currently running a campaign with LivingSocial • Similar voucher sales metrics to Groupon • Significantly better in-restaurant spend compared with Groupon • LS was more responsive to our feedback on deal copy

  24. A comparison of Champps’ two deals Groupon (June 2011) Living Social (August 2012) 11 stores 9,471 purchased Project 8,000 redeemed $39.90 gross spend $319,200 gross sales $9,500 deferred revenue +60,163 cash flow($5,500 per store ave.) • 13 Stores • 7,643 purchased • 6,530 redeemed • $33.31 gross spend • $217,514 gross sales • $8,000 deferred revenue • +$26,000 cash flow($2,000 per store ave.)

  25. Group Buy - Keys to Profitability • Know if you will be selling to your current customer • Incremental visit vs. advanced visit vs. cannibalized visit • Have a solid system to track redemptions • Validating redemption status of voucher at POS • Marking them sold in the merchant center • Capturing in-restaurant spend metrics • Make sure you sell the right deal • Want significant spend above the deal value in-restaurant • Negotiate the commission • Splitting the paid value 50/50 isn’t good enough

  26. Daily Deals & Brand Health Presentation prepared for: MEG October 19, 2012 Presentation by: Mike Murphy, CEO mmurphy@brandiq.biz www.BrandIQ.biz

  27. BrandIQ framework │Brand health measurement

  28. Are Daily Deals Right For you As A Marketing Tactic?

  29. The right brand strategy and marketing tactics that address the needs of different target groups is critical General Population in Category There are deal hunters in every category There are consumers that value a great restaurant experience and don’t buy with deals

  30. Example: Segmenting The Category Convivial Conventionalist 15% Foodie Fanatics 11% Smart Diners 13% Thrifty Functionalist 12% Dining Reliant 14% Segment Junkies 20% Full-Service Restaurants BasicUsers 7% Look for Best Deals Pay More for Quality Experience Limited Service Restaurants Footnote 8% do no fit any particular segments

  31. Your Customers Within Each Segment Full-Service Restaurants % Not many customers fall in this segment % % % Look for Best Deals Pay More for Quality Experience % % % Limited Service Restaurants Footnote 8% do no fit any particular segments

  32. Potential downsides if Daily Deals are not executed effectively Short-Lived Business • Current customers come in on the deep discount, rather than profitable visits from their regular dining. • New customers may not have any intention of coming back and paying full-price. Negative Impact on Customer Satisfaction and More • If you don’t staff up to handle the surge, the new customers may not receive the best experience and are likely not to return. • Regular guests can feel annoyed they have paid full price, while new, non-loyal customers have their experience for a fraction the cost. Repeat Visit Intent Satisfaction Advocacy Extendibility Loyalty

  33. Potential downsides if Daily Deals are not executed effectively Losing Exclusivity • Could cause dilution of brand due to being typically in the company of other ‘discounting’ restaurants/businesses Esteem Popularity Damage to Upscale Brand’s Image • Be careful not to undermine brand image and become the best choice for guests when they want a “cheap” option (alternative – frequent diner program) • Now the Daily Deal price is the price they think they should pay • Real Price is now a “rip-off”

  34. Is your objective to ‘fill empty seats’? This is a short-term strategy to build sales. Building long-term brand equity takes more…

  35. If you’re going to use Daily Deals, make sure there are no negatives in the customer experience for ANY of your guests. Up to 20%↓ in review ratings on after usage. More Critical? Or Worse Experiences? 2011 Study* analysis of 56,000 Yelp reviews of ~2,500 deals from ~2,300 merchants before and after Groupon in 20 major markets. Focused on “Groupon” and “Coupon” keywords on Yelp. John Byers, Boston University, Michael Mitzenmacher, Harvard, Daily Deals: Prediction, Social Diffusion and Reputational Ramifications

  36. Is your objective to ‘Build the Brand’? Build a Loyalty Program Measure Impact (Touch points on Brand Health) Gain Alignment Highlight Brand DNA Operational Excellence “It’s all about the experience”

  37. Questions, comments, hate mail Mark Brandau, associate editor Nation’s Restaurant News | www.nrn.com (312) 840-8435 mark.brandau@penton.com @Mark_from_NRN

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