Case Study: Deals Earns Restaurant 30% Repeat Business and $120,000

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In Winnetka, Illinois, chef Michael Lachowicz has strong opinions on what it takes to run successful daily deal promotions. Lachowicz has run six Groupon deals at his establishment, Restaurant Michael, resulting in more than 5,000 coupons sold and $120,000 in revenue generated in the last two years. He estimates that 30% of coupon buyers have returned after their vouchers were redeemed, and says he’s negotiated a deal with Groupon to get 90% of his payouts just two days after his deals end.

What first got you interested in running daily deal promotions?
[Groupon] approached me, so we said we’d give it a shot. I did it really cautiously at first. I called [other restaurant owners] and checked on what their thoughts were, and I massaged my deal accordingly. In the first deal or two, they don’t give you a lot of latitude as far as what they’ll allow you to do. It’s more of, “This is Groupon’s way, this is what works, this is how we’re going to do it, otherwise the deal is off.” But after you run a couple and you [have] become a proven entity, you [can] name your own deal. What’s more important is that you prove that you’re not going to take the money and run. A lot of times, what ends up happening is restaurants that are in dire straits are grasping for whatever they can get their hands on trying to save themselves. If you do a Groupon, or some kind of a deal like that, because you need it, you’re going to fail. It puts you upside down.

The reason I did it — and did it multiple times — is because I [wanted to] finance my own addition to the restaurant for a private room. I poured $120,000 into the building and it’s been a fantastic investment so far. I’ve never been busier. We’re jammed. I’ve got private parties coming from all over the place, and people love it. I did it without a bank loan. I self-financed, and it’s paid for in full.

Does that mean that you’ve brought in $120,000 just from the Groupon marketing?
Correct. That’s the money I used to build that build-out, and it was a seven-month project between the architecture and everything else. All that money came from the deals.

What made you want to go with Groupon versus any of the other deal companies?
They’re the big dogs. They are the ones that started it. They have the biggest footprint. They have the biggest database, and they hit the demographic that I want to target for my restaurant. It’s all about marketing. All the other ones are pretenders to the throne.

How do you make sure that your Groupon deals are being sent to the right demographic?
I don’t. I put myself in the hands of Groupon, and they are the ones who have done it best. They’ve done the research. They’ve done the work, and that’s why I go with only them, because the other companies, they’re just trying to do it with volume. Volume doesn’t work because you bring in the dregs. You don’t bring in great customers, you bring in deal seekers. If the only reason you’re on a site is to seek deals, then I don’t want you in my restaurant. The only reason you’re going to be there is because you got a deal, and you’re not coming back without it. That’s a waste of time.

Do you have a sense of how many deals you’ve sold so far?
Over the course of all the deals I’ve run, I’ve sold over 5,000 coupons. They’re different deals though. Some of them are a $60-for-$30 purchase. Some of them are five-course tasting menus paired with three wines. Some of them are seven-course tasting menus paired with four wines. They’re staggered, and I receive [the customers] in a very controlled fashion that I get to dictate.

How do you make sure that all your deal customers don’t come in at once?
I have to manage it by having restrictions on the timing. On Fridays and Saturdays, we don’t take any Groupons between 6:00 p.m. and 8:00 p.m. The tasting menus, I only take a limited amount [of reservations] on Fridays and Saturdays, because otherwise, the kitchen simply can’t keep up. The kitchen is big enough for what I’m doing, and the size of the room that I have, but if I inundate them with seven-course menus in the middle of 150 people, it’s just not good business. And then, the people who bought the Groupons aren’t going to be happy because they’re not getting great service. I do it in a controlled fashion so that I can deliver the message and the product that I want them to experience.

The restrictions [on the deals] have been a factor [in my success]. But the thing is, the more restrictions you apply, the fewer you sell. But that’s okay because I’m not trying to target the masses. I don’t want to throw my net out on the water and get as many people in as I can, I want the right people, and the right people will understand there are restrictions so I can maintain quality. If I don’t have some restrictions, and I just do it willy-nilly, then that means I don’t really care about the experience. The people who are purchasing [deals] that have more restrictions are good customers. And they are return customers, and that’s important to me.

Do you have any ways of tracking whether you are getting return customers from Groupon?
I track every single one of them. I have a 30% return rate. That’s huge. Groupon — because I’ve done so many [deals with] them — has given me a smartphone and everything is done electronically now. So, I am able to actually document and register each Groupon [customer] as they come in. Then I can download that information into my database and I can cross-reference it with OpenTable [reservations].

Where do you see the daily deal industry going in the future?
Groupon, in my opinion, is not a sustainable concept. It’s not going to last. For me, I’m going to ride that horse till it dies, and then I’m going to eat it. But the fact of the matter is, I get my money — 90 percent up front — in two days now. Before, it was 33 percent, 33 percent, 33 percent; the first third after five days, the second third after 30 days, and the final third after 60 days. Well, I don’t have to do that anymore. I get my 90 percent in two days — that’s two days after the sales have closed — and then the final 10 percent I get at the end of 30 days.

The reason this is not sustainable for them is because they’re financing future deals on the backs of deals they’ve already run. So, if the deals ever become smaller rather than larger, it’s going to be a problem. That’s why I’m not going to [run deals] unless I get 90 percent up front, because I never know what’s going to happen. What if Groupon decides to cut and run? I have no idea what’s the recourse. But they’ve been cool; I’ve had no problem with them. They pay when they say they’re going to pay, and the fact is, I don’t have to pay for [the marketing]. I get paid.

[In the future] I see it shrinking down to a few key players. Right now, you’ve got 30 of these [deal companies] out there that are trying to compete with Groupon, saying how much better their product is. The fact of the matter is, the products are the same. It’s all about being able to attract the right database, and having the demographics match the business.

What are your tips for restaurant owners that are thinking about running their first deals?
If you run a deal because you need it, you’re going to be in trouble. Don’t do it because you need it. Do it because you have a targeted plan and there’s something that you’re going to use the money for. You don’t want to do the deal because you’re desperate. You have to do a deal like this because you expect it to be a marketing expense. That’s the key. You have to focus on that, because you end up getting a tremendous return on your investment if you look at it as a marketing expense. People are coming back. I’m reaching guests I would have never reached before, simply because I’m too far away from Chicago proper and there’s too many great restaurants between those people and me. Now, with a deal, I can bring them up to me, and I can show them this what I have to offer.

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This interview has been edited for length and clarity.

Stephanie Miles is a journalist who covers personal finance, technology, and real estate. As Street Fight’s senior editor, she is particularly interested in how local merchants and national brands are utilizing hyperlocal technology to reach consumers. She has written for FHM, the Daily News, Working World, Gawker, Cityfile, and Recessionwire.