Are group buying sites worth it for the hospitality industry?

Hotels and restaurants have different agendas; typically in hotel groups with food and beverage use those outlets as loss leaders to attract top tier business travelers. Stand alone restaurants cannot afford to lose money, and must decide whether their marketing endeavors are bringing in more business. The sudden emergence of Groupon, Living Social, Village Vines, and other group buying sites have sprung up very rapidly, with restauranteurs and hoteliers left to decide whether their services are economically feasible for their operations.

Let's take the example of a Groupon deal that offers a Midtown business hotel room for $100 on a weekend evening; a room that typically goes for $200 in a similar month. After splitting the revenue with the Groupon, the hotel only obtains $50 for a room that would otherwise go for $200, a significant drop. The GM must question whether this Groupon will bring repeat customers, and whether those same clients will spend on room service, movies, internet, and other streams of revenue. It might make sense, but only if those rooms would otherwise be left unoccupied, (and only if it will not affect their STAR rating.)

Restauranteurs on the other hand, have less of a chance to make additional revenue. $15 for $30 worth of food yields the establishment only $7.50, so with an industry standard 30% food cost ($9 for $30 worth of food) the owner lost $1.50, not counting labor cost. This is a very steep price to pay for potential new customers.

The business problem that arises is there is very little data to support how many first time customers come back to dine a second time. Restauranteurs typically are not monitoring their marketing efforts against real time POS transactions, nor are they using Customer Resource Management software to track the buying habits of their clients. This leaves a very grey area that group buying sites have capitalized on.

The best way to capture the benefits of these sites would be to limit the dining time to off peak times, i.e. before 7PM and after 930PM for dinner service, or during months that are typically off season. This fills seats when they otherwise would be empty, and gives the establishment a way to show off their services to a new audience. Hoteliers typically take a very analytic approach to setting rate, and therefore take many factors into play before deciding whether to join such a site.

Groupon has recently been valued at over $25 billion, mostly because they have sold retail, hotel and restaurant organzations the merits of their services. Restauranteurs should look into automated ways to analyze the benefits of such services, or hire consultants that can.