The Weekend Groupon: Robust's Commentary

This Groupon frenzy is fascinating. On Friday, the SLM office was buzzing--and buying--everyone taking advantage of Groupon's deal of the day: $40 worth of food and drink at Robust for $18, representing what clothing retailers call "55 off." Call it what you will, it was a few-strings-attached deal at one of the hottest restaurants in town (Robust was named SLM's Restaurant of the Year for 2008), and nearly 4200 were sold, a new local record for restaurant Groupons.

Let's bore deeper into the deal. Figuring in some attrition, 3500 Groupons translates to $142,000 + in rebated revenue. Even after the rebate from Groupon, the loss appears to be well over 6 figures. How can a restaurant, where profits traditionally run 5-15%, absorb that kind of hit, especially since many Groupons get redeemed early in the (normally year-long) campaign?   

Who better than Robust's owners, Stanley and Arlene Browne, to answer the question (and a few more)? Upfront, I'll opine that the Browne's have done a brilliant job marketing Robust, consistently doling out creative programs and concepts (WinEsips, Flight Night, Cinco de Vino), and tying them all together by an integrated Facebook, Twitter, and newsletter campaign. Here's what they had to say:  

So why did Robust participate? Why would a successful place engage in what some would call "daredevil couponing"?

Robust has never done any coupon or dining discount program before. At first glance, Groupon may look just like a deep discount coupon, however, we really looked at it as a Marketing/PR promotion. Groupon has over 60,000 email subscribers in the St. Louis area and because we do very little print advertising, the concept fit well with our social media plan and our goals to broaden our customer base. We still hear over and over “we have never heard of Robust” but now over 60,000 have in one weekend through Groupon alone.

So how can a low-margin business, like a restaurant, absorb those numbers, especially in the short run?

We are fortunate to have a strong and steady customer base that will keep our budget in balance. Groupon will bring in a new customer base that we may not have reached, filling our seats everyday. Plus, in today’s economic climate, we wanted to give customers and potential customers the opportunity to experience more of what we have to offer. People are looking for deals that give them more spending power; take Cinco de Vino for example, where we discount 40% off bottles. Typically customers trade up to a bottle they would not normally buy.  We are banking on the same behavior with the Groupon; they can spend more with the Groupon and experience Robust at a different level. (Yes, we anticipate there will also be those that don’t spend more.)

At face value, Groupon may not appear to make financial sense, as it does not cover the cost of our product. Look beyond face value: We expect people will spend well more than the Groupon (which helps recover some of the Groupon loss); we are attracting a new customer base;  and WOW, look at the PR buzz factor! We're 2 1/2 years into it now - we don’t want to get stale!

It’s a marketing expenditure in the short run and a promotion that may not work for everyone. We think it’s a good fit for Robust.

If this weekend is any indication of our success with Groupon, it looks very promising. We were on a wait from 6pm until 10pm with lots of new faces. Of course, we will have to do a complete analysis of the numbers over the year. Ask us then.

Why didn't you put a cap on the number of Groupons and why did you let the offer run for the entire weekend when you didn't have to? 

We wanted to capitalize on the “talk” through social media outlets and traditional word-of-mouth. It definitely seemed to work. It’s all about expanding your customer base and keeping the word of mouth alive, so the more we reach the better. We want to keep the momentum! Also some of our Robust regulars bought 4 Groupons (max limit). It served another purpose, a little reward,  a “thank you” to them for being such great customers.

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I took it one step further and determined Robust's real cost of acquiring all these new customers and generating all this goodwill (and no, I'm not showing my work). Let's just assume 3500 Groupons get redeemed; factor in Groupon's rebate; then assume that every Groupon nets Robust $60--not $40--which is plausible, if not realistic. If you then apply standard restaurant cost percentages, Robust's cash outlay for the Groupon program is less than $1000 per month. (If all their Groupons were redeemed at the $40 face value, the real cost would be closer to $3000 per month.)

The conclusion? Groupon can be affordable, it can be a good thing. Its short-term success (and affordability) is dependent on the diner's willingness to spend beyond the value of the Groupon. Ideally, in the longer term, diners will become regulars or at least semi-regulars. 

I'll check back with the Browne's this time next year to evaluate the program, but I know I'll see them sooner...I bought two Groupons. -- George Mahe