How Groupon-Type Deals Sucked $115M from Independent Restaurants in 2011

Groupon and the other deal sites had a great 2011.

The total “deal” volume grew a whopping 140%! So that should mean a big lift for restaurants, especially independent restaurants, that sell a majority of daily deals, right?

Unfortunately, the data reveals that visits actually fell while money was siphoned out of the restaurant industry. 

Visits to independent restaurants were down by 4% in 2011, but Groupon-like deals expedited a massive increase in half-price “deals" across the country. Just let that sink in for a second; roughly 14 million-restaurant deal vouchers were sold in 2011 all while total visits to independents went down significantly. The Groupon deal activity did not create new visits at all! At best, Groupon and Living Social discount vouchers convinced diners to trade an already planned visit from one restaurant to another. In other words, rather than generate new visits, Groupon has just rearranged the location of visits with the purchase of a 50% off voucher. Furthermore, diners around the country get a minimum of five dining offers every week, negating all likely-hood that a Groupon offer will produce a loyal customer at your restaurant. Meanwhile, Groupon and other daily deal sites made a whopping $140 million in fees from restaurant deals that didn't help you at all.

Data suggests that the growing daily deals economy is a virtual arms race, where your restaurant buys patron visits from your competition at the Groupon rate of 50%. Restaurants no longer control their industry revenue, $140 million now flows into the pocket of Groupon and Living Social and another $140 million is lost in heavy discounts you pay to play a loosing hand.

Let's follow the money.

Restaurants have paid out approximately $140 million in fees to daily deal sites and allowed their goods to be discounted another $140 million, for a total of $230 million, all while watching the restaurant industry slide 4% in 2011.  Groupon's a modern spin on an age-old game; generate an audience by giving away discounts they don't pay for and selling the audience to the highest bidder. Is this how technology is supposed to be helping Main Street?