Why Groupon’s Failures Should Be a Wake-up Call to Struggling Restaurants

Andrew Mason, now 100 percent off.
Andrew Mason, now 100 percent off. Photo: David Paul Morris/Bloomberg via Getty Images

The ouster of Groupon founder-CEO Andrew Mason late yesterday has produced a flood of what-happened-and-how-do-you-turn-this-thing-around pieces — see Phil Rosenthal in the Chicago Tribune or John Pletz at Crain’s. Yet almost no one has given more than passing mention to the central customer experience of Groupon, at least during its heyday: restaurant and other small business discounts. So we turned to an expert to see what she thinks.

Ellen Malloy is a restaurant publicist turned creator of social-media platforms for restaurants; her company Restaurant Intelligence Agency was formed to respond to many of the same changes in the marketplace and media scene that Groupon was responding to, but she became a dogged opponent of Groupon’s answer (discounting) in favor of chef-driven restaurants taking control of their own marketing. We spoke with her about what she thinks this story means for Groupon’s original business, restaurant (and other small business) discounts.

It’s easy to see why restaurants went for Groupon, because there was a keen insight into the small-business mind-set — instead of charging you a fee or 15 percent up front for marketing like a traditional agency, Groupon only made money if they delivered the traffic. The problem for small business was, then their cut on the backend basically ate any profits. So it wasn’t a sustainable business model for either side. You had to use Groupon to deliver traffic that would then allow you to stop using Groupon and actually make money.
The problem with Groupon and restaurants isn’t even Groupon. It’s restaurants. Restaurants don’t have sustainable, long-term marketing plans — they don’t have a process for attracting, engaging and retaining a growing diner audience.

So, if a restaurant uses Groupon (or another quick-fix solution), it’s going to be a one-time shot in the arm they can’t capitalize on. There’s a flurry of activity and drama that “seems like marketing” because it is bringing in an audience but there’s no follow-through. The restaurant doesn’t have any way to really capture and meaningfully engage with the audience Groupon delivers, so any benefit the restaurant could get from the endeavor is lost.

Wowing people who are sitting in your restaurant isn’t marketing strategy, that’s you doing your job. Marketing is what happens once they walk out the door. How are you going to get them back?

Especially when you’ve trained them to think about you at a discount price. How do you get them back to thinking of you as a premium product after that? How do you make that switch from marketing a price to marketing your experience?
Here’s the thing about marketing: Chefs already get it. They know it is just a matter of sharing their story — the story of their food. It happens every day at the shift meeting when chefs share each dish in detail with servers so servers can sell the dish to diners. The missing piece is doing that same thing for customers outside the four walls of the restaurant — and that means both current and future customers.

Marketing means more than retweeting customer props or sharing a good media hit on Facebook. Those things don’t inspire customers to act. Marketing also means more than posting a picture on Instagram and listing the primary ingredients of the dish. We call that food porn in the industry because that’s all it is — porn. Porn may be awesome, but it’s not relationship building. Marketing is relationship building.

Groupon was white-hot because it was novel, huge, and offered restaurants an easy way out. You don’t have to think to do a Groupon, just sign up and gird your loins. With marketing, you have to think a little, you have to work a little. But here’s the thing — in comparison to other industries, restaurants have it easy. Think about it: If you’re a band, you probably have one new album each year. If you are a retail store, you get product in once a season. For restaurants, there’s something new nearly every day — a new dish, a new cocktail, a new wine, a killer pairing a server discovered — leveraging all of that is what marketing is about.

So this is the end for a lot of things — Mason’s position as the new whiz kid of tech, Groupon’s first chapter as a business, and the model that made up that first chapter. What’s next for the restaurants who went through that with Groupon?
I am sad for Andrew because I started my own business and I can’t imagine how horrible today is for him. But I am hoping that this will shake restaurants out of their desire to find a quick fix. I am hoping they start to realize the opportunity they have to connect with an audience that is literally starving for information about what they are doing.

They know how to do it, they really just need to stop hoping someone else will do it for them. They need to start owning it — owning that they are the best storytellers for their story. The ones who own the work of telling their own story end up with consistently busy restaurants and don’t have to hand over half the price of each meal to a Groupon.

Why Groupon’s Failures Should Be a Wake-up Call to Struggling Restaurants