Taking a bite out of the e-coupon craze

P opular deals on Groupon Honolulu: $25 worth of food for $12 from Le Cacao Bistro, $20 of pizza and drinks for $10 from Round Table Pizza, and $65 worth for $30 from Gyu-Kaku. If enough people jump on the bandwagon (and they do, in the thousands), you’ll have a set amount of time (24–48 hours) to take advantage of your score.

These are the types of Groupon deals that have been available in Honolulu since last October, with restaurants making up a good portion of companies offering at least half off with just a click of the mouse. Says company spokesperson Chad Nason, “Groupon is all about experiences, finding new things in your community, and restaurants are a great way to do that.”

But for restaurants, the socially oriented, half-off-style deal is more complicated than meets the eye.

“You get all excited because you have people out the door, lines down the street, for weeks,” says Honolulu Burger Company owner Ken Takahashi, “But you’re not really making any revenue. Because it’s all on paper.”

For its second time with Groupon, Honolulu Burger Company, a joint located on Beretania and Piikoi boasting Big Island free-range beef creations, maxed out at 3,000 deals. First-timer Sarento’s Top of the Ilikai, a fine-dining restaurant on the hotel’s 30th floor, sold 2,048. Downbeat Diner, a Chinatown spot offering burgers as well as vegan and late-night grinds, sold 1,094 (after intending to cap it at 500).

Compared to traditional marketing, such as placing an ad in a glossy, these restaurants didn’t “spend” any money on a Groupon deal. In fact, at the start, businesses collect.

Groupon gives the business a lump sum check when the deal begins (minus Groupon’s cut, typically 50 percent). In the end, Downbeat Diner’s take-home on a $20 guest check: $5.

Additionally, because the Groupon effect is dramatic, companies typically need to bring on extra staffing and increase their supplies for the rushes. Downbeat Diner, which had opened just two months before, was suddenly at capacity every lunch and dinner. Sarento’s was booked full almost every night and is still seeing a surge on the weekends.

Takahashi says Groupon prepares businesses for this beginning-and-end-of-deal rush effect. Groupon holds webinars and shares information at [], and local Groupon salesperson Titus Nakagawa, who sets up and manages the deals, gives preparation advice and checks in. Sarento’s Top of the “I” timed their deal to kick off and end at the slowest part of the season while staffing as if for the holidays. On the other hand, Downbeat Diner’s owners remember no such preparation and minimal communication with Groupon.

“Obviously we want every customer who comes in here to have the best service and best experience they could have, and unfortunately that didn’t happen,” says Serena Hashimoto, co-owner of Downbeat Diner.

While Groupon seems like a good idea for a new business, the risks are high. The rush can be greater than anticipated. For restaurants with little on reserve, the drain of Groupon deals can leave them running on empty.

Downbeat Diner tried Groupon just two months after opening. In retrospect, say the owners, they should have waited. Groupon visitors also didn’t tend to spend more than the $20 the deal was worth, so there was no “upselling” benefit.

“I had some regular customers who bought Groupons return them to me,” says Josh Hancock, co-owner of Downbeat Diner. “They felt bad because they realized it wasn’t any kind of deal for us.”

Now Downbeat Diner has found its patrons, which tend to be drawn by geography instead of deals–younger Chinatown locals, businesspeople, industry folk and nightlifers. Conversely, their Groupon buyers were littered all over Oahu, with some even from the mainland, with an average age of 40.

But for Takahashi of Honolulu Burger Company, “Both [Groupons] have been very successful for [us] in drawing customers to our restaurant. Because we’re in a very difficult location, it makes it a lot easier for people to know where we are.”

And for Adam Miller, General Manager of Sarento’s, the main purpose of Groupon was to get the Ilikai name back out there after suffering PR problems, and “to remind people we’re still open. And that’s mission accomplished.” He has also seen a dramatic increase of reviews on sites such as Yelp.

While Groupon makes it possible to track and receive ratings from Groupon purchases, the actual long-term effects of the deals, which have only been available for two years, are still hard to gauge.

And this is the case for the success of Groupon itself. Currently in the quiet period of an Initial Public Offering or IPO (going from a privately owned to publicly shared company), it’s receiving harsh Wall Street scrutiny and stiff competition from the likes of LivingSocial and SocialBuy. In the last two years, Groupon has been claimed as the fastest growing company ever and rumored to be losing money like quarters in a pocket full of holes.

But for Miller of Sarento’s, a Groupon recently redeemed at his restaurant confirmed that the whole thing was worth it.

“We had a guy who made a reservation for a party of two, for himself and his girlfriend, and then he made a separate reservation on the same night for a party of 12. His family was waiting in the private dining room, and he proposed. She said ‘yes,’ and they went and had a celebration dinner.

“An aunt or uncle said, ‘This is genius, how did you ever think of this idea?’ and he said, ‘I’d never heard of this place, but she had a Groupon.’”