Research: Operators reveal pros and cons of daily deals

Restaurateurs who offered Internet “daily deal” discounts were evenly split about whether or not they would run such promotions again and confirmed that the offers can cannibalize sales, according to researchers from Cornell University and Rice University.

“Operators reported that about 40 percent of the deal purchasers were new customers, meaning that there was substantial cannibalization of existing customers,” said the researchers, who conducted an online survey of restaurateurs in late 2011 and summarized their findings in the report, “Restaurant Daily Deals: The Operator Experience.”

On the plus side, the researchers added, “Thirty-fivepercent of the first-time deal customers returned to the restaurant without a further incentive.”

The research was conducted by Joyce Wu,a Cornell School of Hotel Administration student at the time of the survey who is now an analyst for Nomura Group; Sheryl E. Kimes, a professor at the Cornell School of Hotel Administration; and Utpal Dholakia,an associate professor of management at the Jesse H. Jones Graduate School of Business at Rice University.

Completed with research assistance by Nation’s Restaurant News and sister Penton Restaurant Group publication Restaurant Hospitality, the trio’s work was published in the Cornell Hospitality Report for December released Wednesday by the Center for Hospitality Research at Cornell University.

The survey of subscribers to Nation’s Restaurant News and Restaurant Hospitality netted 273 completed responses and found that 49.4 percent of the respondents had offered a daily deal through social couponing sites, including Groupon.com, LivingSocial.com and Restaurant.com, which handled 55 percent, 22 percent and 10 percent of those operators’ deals, respectively. 

Among other offers, such websites let consumers buy at steep discount a credit for a dollar amount of purchases at participating restaurants. Restaurateurs share a portion of the proceeds with the website operator – a split that, in the case of the operators surveyed by Cornell and Rice, averaged 40 percent of the deal price.

About 81 percent of the operators offering deals said they boosted sales by up to 20 percent, with another 11 percent saying the promotions bumped sales between 20 percent and 40 percent. The remainder of dealmakers indicated that their sales grew from 40 percent to 80 percent, the researchers said.

In terms of profits from daily deals, 39 percent of the dealmakers said they lost money, 38 percent said they made money and 23 percent reported “breaking even.”

The researchers noted that 36 percent of operators that offered deals indicated they were likely to do so again, while 36 percent said that they were unlikely todo so and 28 percent were undecided.

Along with worries about their potential harm to profitability, some operators are wary of daily deals because of concerns deal users will tip based on the net amount of their bill after discount, thereby shorting restaurant employees on gratuities. Some 51.3 percent of the operators surveyed confirmed that deal users tipped on the net amount, versus 42.3 percent who said they tipped on the full amount.