Business and Operations
from the editor’s desk: November 2011
Discounting to death
By Laura Aiken
This issue of Canadian Pizza focuses heavily on daily deal companies
such as Groupon. Our cover story looks at the industry, how it’s
evolving and who may or may not benefit from participating in a group
offer. Diana Coutu shares her experience with Groupon in her column for
this edition. And I will tackle it here as well.
This issue of Canadian Pizza focuses heavily on daily deal companies such as Groupon. Our cover story looks at the industry, how it’s evolving and who may or may not benefit from participating in a group offer. Diana Coutu shares her experience with Groupon in her column for this edition. And I will tackle it here as well.
Why cover it so intensely now? It’s been a hot-button issue all year and spring saw a real bonanza of daily deal companies. The last six-month period has shown continual growth. I think the daily deal industry has had a big year and as we head towards the end of it, it seems a good time to look at what’s shaken out of the storm.
Why such a big issue? I can’t think of another marketing tool with this growth rate that has had the ability to completely cripple a business to closure. I also can’t think of another marketing medium that can bring such a tsunami of customers to your door. If you can, let me know, but this group buying scheme seems novel in its power. At best, most tools will get you a good wave. A daily deal could flood you with business like nothing you’ve ever seen. If you are prepared and can handle it, a lot of new people will have been introduced to your pizza. And it’s common to make little or no money on a promotion to get new customers, but there are many ways to go about this. It may be that giving your pies away for free at a charity event would have less risk to you and still introduce people to your food. At the end of the day and all the research, it’s not the daily deal that’s bad itself, it’s that a steep discount is inherently bad for businesses with tight profit margins. As a pizza operator, you’re probably going to have trouble making the math make sense and it will only get worse without a lot of control over the terms of the arrangement. However, much of the point in covering the daily deal industry in depth is to better understand this new product because it’s probably not going away and may even evolve itself into a really useful thing for pizza operators. But deep discounting has never sat right with me when you have such a high cost associated with selling every product. Pizza is not a hotel room already there and needing to be filled. It’s made fresh to order every time and wouldn’t cost anything if no one ordered it (labour and overhead aside). But as I said, it’s how this new industry is evolving that we want to consider. There are good and bad stories to be heard from pizzeria owners, and Coutu’s tale highlights a lot of things you should be aware of if you want to try out an offer on your market.
Daily deals involving foodservice vendors are a great bargain for subscribers but seem to be a poor fit fundamentally for restaurants who would find it difficult to swallow a discount of 50 per cent or more plus fork over the commission to the company plus pay the extra staff costs needed to cover the influx of business. Plus, there is the question of devaluing the product. We know it can be tough to get people to pay more once they’ve paid less. However, you will see measurable, tangible results with a daily deal offer in terms of people coming through your door. And, there are the benefits of new customers potentially turning into loyal ones. Just be aware of the dangers and know your objectives and expectations before signing on.