Coupons: $20 Bills for Strangers

Here's another way to look at coupons, I tell the owners of struggling restaurants.

I do understand that you're worried. Your competitors are filling seats with coupons, there are dozens and dozens of companies offering coupons, and it might appear that every table coming in the door does so because (and only because) they have a coupon.

But coupons are poison. Here's why:

Let's say it's a $50 coupon that the customer bought online for $25. You, the restaurant, get only half of the $25, or $12.50 (Sometimes a bit more, maybe $15.) You're going to serve the customer $50 worth of food, while the customer, if he's a generous type, leaves a $5 tip on his check of $0.00. He walks out and will never return. Tomorrow he's eating somewhere else. He never pays full price. He will certainly never pay full price at your restaurant; you've trained him to pay less.

What these owners don't understand is that they're handing $20 bills to strangers and inviting them to come and eat free food.

A Groupon-style promotion might sell 1,000 vouchers at $25. For the owner, it's a quick and painless check for $15,000 (paid in installments, to be sure), but now they have to cook for those 1,000 tables. Feed them and wash their dishes and launder their napkins, and buy the ingredients and pay the servers and bussers and cooks. And they are foregoing $35,000 in revenue.

If you asked a restaurateur to "invest" $35,000 in a promotion, he'd unceremoniously show you the door. A promotion with a cash outlay (or foregone revenue) of $35,000 should produce at least $500,000 in sales, not $15,000.

How long will it be until restaurants decide that it's cheaper just to give away $35,000 in $20 bills (to some 2,000 strangers) and not feed them?

The crack addict knows he should quit but can't; he's hooked. Restaurants owners don't understand the economics. They should don't even know they should quit, but they're hooked, too.