Groupon is Not to Blame: Back Alley Waffles by the Numbers

Last week another restaurant-Groupon faceoff went public, featuring Back Alley Waffles in Washington, DC. Back Alley claimed Groupon’s slow payment cycle was to blame for a business-killing cash crunch. Groupon fired back saying they were paying on the agreed-upon schedule, and that only 18% of the daily deals sold had been redeemed.

It is easy to blame others when business goes south. Ruby Tuesday once blamed “winter weather” for missing sales targets. Groupon makes a tempting target. But the facts are on Groupon’s side and provide an unfortunate but helpful lesson to other operators.

Let’s run the numbers:

-- Customers bought a $16 coupon for $8.

-- 733 deals were sold, generating $5,864 in sales.

-- Back Alley earned half ($2,932) payable in 3 monthly installments

-- 132 deals were redeemed.

Note: the restaurant is publishing somewhat different numbers but the difference is not material.

My gut (and I’d love some operators to weigh in) is that the gross margin on an artisinal waffle is at least 60%. That means for every Groupon redeemed, Back Alley Waffle incurred tops $6.40 in direct cost. Cost = $6.40 x 132 = $844.80.

Let’s play that back: Back Alley Waffle earned $2,932 at a cost of $844.80. 

Even with a slow payment cycle, Back Alley was out $844.80 while waiting for their first $977 installment.

There are two big lessons here. The first is to make sure you have enough cash on hand to invest in your business post-opening. If you get to opening day with nothing but loose change, you’re probably toast. As a new restaurant Back Alley was just figuring out their operations and doing so with what they describe as “no money”. Sudden success, even before the Groupon, made the learning curve doubly hard. So why then spend money you don’t have to get customers you don’t need? Operators should to align their marketing investment with their business needs.

Second, know your operating metrics. The cost of the campaign is not forgone revenue ($16 X 733 = $11,728) and should not include indirect costs. Did Back Alley add staff specifically to serve 132 Groupon customers over a month? Did they pay more rent or need a new licence? The only costs are the direct costs of cooking and serving waffles for the customers who redeemed. 

I don’t think daily deals are for everyone. I think a daily deal can be dangerous if not done right. But this deal looks like like it accomplished what was intended- customers acquired profitably. 

Published originally on Ordr.in's blog

Views: 76

Tags: daily, deals, groupon, marketing, restaurant, tech

Comment

You need to be a member of FohBoh to add comments!

Join FohBoh


Non-Operator
Comment by Keith Rydh on August 7, 2012 at 6:12am

Avoid Groupon and take control of your coupons!  At FoodiesUSA (www.FoodiesUSA.com) restaurants that sign up for a Featured Restaurant profile for $199.95 for the entire year, can produce any coupon they desire, set the terms, and not have to pay anything if the coupon is used.  Plus their profile can be changed at anytime to reflect menu changes, business updates, etc.  It's what we call active advertising and is cheaper than a 1/8 ad in a weekly local paper.  How can you lose?

Advertisments

 

DEPARTMENTS

Social Wine Club for Craft Wineries

Smartbrief

PepsiCo exec Lisa Walsh shares path to leadership

Industry leader Lisa Walsh, vice president of PepsiCo Customer Management, has risen through the ranks at the company since j -More

Checkers, Philly Pretzel Factory seize opportunity at Wal-Mart

Checkers and Philly Pretzel Factory are hoping to benefit from Wal-Mart's popularity by embracing new franchise development o -More

Quickserve eateries entice customers with local and sustainable angle

Locally-sourced, conscientious ingredients are gracing menus and grabbing loyal consumers at an increasing number of restaura -More

Galbani® Mascarpone. Gold Standard True Italian Taste.
Italy has a flavor all its own. When it comes to cheese, chefs who know choose Galbani. For irresistibly savory risottos and pastas, try classic Galbani mascarpone. Its rich, creamy goodness makes it perfect for favorites like tiramisu and cannoli. Galbani mascarpone, one of the fine brands from Lactalis Culinary. For paring suggestions, click here.

JOBS & CAREERS

Posting a job or finding a job starts here at FohBoh. Call us about special $50 posting packages to syndicate across all major jobs boards.

National News

Gen Z, the First True Digital Generation, Represents the Future Foodservice Consumer

Gen Z, the first true digital generation, represents the future foodservice consumer. They're a generation on the move that strongly prioritizes speed of service, technology, and having what they want, when they want it. Millennials, more so than older generations, prefer to visit restaurants that offer new and unique foods and flavors. Gen X and Boomers converge on several preferences—such as the importance of a convenient location.

Red Robin Gourmet Burgers Celebrates Its 500th New Restaurant Opening

Red Robin's 500th new restaurant opening will open on Aug. 4 at 11 a.m., in Milpitas, Calif. at the Great Mall of the Bay Area.

Darden Completes Sale Of Red Lobster To Golden Gate Capital

Darden Restaurants, Inc. (NYSE: DRI) and Golden Gate Capital today announced that Golden Gate has completed the acquisition of the Red Lobster business and certain other related assets and assumed liabilities for approximately $2.1 billion in cash.

Dunkin' Donuts Announces Plans For Seven New Restaurants In Duluth, Minnesota With New Franchisees Brian And Sharon Weidendorf

Dunkin' Donuts announced today the signing of a multi-unit store development agreement with new franchisees, Brian and Sharon Weidendorf, to develop seven restaurants in Duluth, Minnesota and the surrounding areas. The first restaurant is planned to open in spring 2015.

Wendy's Names Brandon Solano Senior Vice President of Marketing

The Wendy's Company (NASDAQ: WEN) announced today that Brandon Solano, 43, a veteran brand builder and product innovator, has been named Senior Vice President of Marketing.

CROWD FUNDING

If you are looking for capital to start or grow your restaurant, create the next 501c3, develop and launch the next app for the restaurant industry,or want to help your peers in some meaningful way, we want to know about it.

TED TALKS VIDEO

TED: Ze Frank: Are you human? - Ze Frank (2014)

Have you ever wondered: Am I a human being? Ze Frank suggests a series of simple questions that will determine this. Please relax and follow the prompts. Let's begin …

TED: Heather Barnett: What humans can learn from semi-intelligent slime - Heather Barnett (2014)

Inspired by biological design and self-organizing systems, artist Heather Barnett co-creates with physarum polycephalum, a eukaryotic microorganism that lives in cool, moist areas. What can people learn from the semi-intelligent slime mold? Watch this talk to find out.

TED: Shih Chieh Huang: Sculptures that’d be at home in the deep sea - Shih Chieh Huang (2014)

When he was young, artist Shih Chieh Huang loved taking toys apart and perusing the aisles of night markets in Taiwan for unexpected objects. Today, this TED Fellow creates madcap sculptures that seem to have a life of their own—with eyes that blink, tentacles that unfurl and parts that light up like bioluminescent sea creatures.

TED: Nikolai Begg: A tool to fix one of the most dangerous moments in surgery - Nikolai Begg (2013)

Surgeons are required every day to puncture human skin before procedures — with the risk of damaging what's on the other side. In a fascinating talk, find out how mechanical engineer Nikolai Begg is using physics to update an important medical device, called the trocar, and improve one of the most dangerous moments in many common surgeries.

© 2014   Created by FohBoh.

Badges  |  Report an Issue  |  Terms of Service