Discounts. Kill. Restaurants.

In a world where deals and discounts are commonplace, it's tempting for restaurants to hop on the discount/discount platform bandwagon in hopes of attracting more customers and increasing sales. However, what may seem like a short-term boost in traffic can often have long-term consequences on the restaurant's reputation and overall business. In this blog post, we'll explore why discounts are not a gift from above and how they can actually undermine the very thing they are trying to accomplish, building a business.

What Do Restaurants Do?

This may seem like a rhetorical question, but for those discount seekers, it’s likely not… A restaurant is here to provide you with certain pleasures. First and foremost, is food…amazing food! and coffee… Otherwise, why would anyone visit? Maybe for the Instagram clout, but that’s another story.

Next, would be service, and in this part of the world, very attentive service. Then the atmosphere; nice seating, good views, provocative artwork, etc. Finally, the simple things, such as; condiments, napkins, wifi, etc.

All these provided pleasures have a cost to maintain their integrity and quality. When you start to discount the value of these pleasures, the pleasures must then adjust to meet the desired budgets of the discount seekers. It is not sustainable to provide high value at low cost. I mean, that’s kind of Economics 101… maybe 102.

Customer Acquisition with Discounts

Sure, discounts can be considered as a cost for customer acquisition, even retention, and one could argue that it’s justified…but tell me is it only new or churned customers receiving the discount…no. What starts as the holy grail of a customer acquisition strategy, which promises to drive (high valued) traffic, turns into a quagmire of discount seeking consumers with no interest of ever becoming a loyal… (singing “these discount customers ain’t loyal”)

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Well known in the marketing world, discounts will inevitably discount your brand, this is why LV never goes on sale and burns their unsold products (it’s true…look it up). Once a restaurant starts to discount their product (a discount which is so easily available), consumers get used to the discounted price, it becomes the norm, and attracts more discount seekers.

Once you have travelled past the discount “event horizon”, there is no escape (unless you have a ship powered by dark matter, but I digress) and now you, the restaurant, have to adjust the business model to account for a business driven by discounts.

The First Sacrifice: Ingredients

Where you once boasted about your organic veggies, grass fed beef, and holistic healing cups you will now need to cut back… So you start ordering discounted, lower quality products, and boring old Swedish dish ware, just to ensure you can maintain profitability.

The Second Sacrifice: Service

As margins get thinner, you start to look around and see where else you can cut costs. Aside from your food costs, the next thing on your list is labour. So, you start to cut staff and/or hire lower cost (less qualified) staff to meet the growing demands of your discount driven customers. Service quality drops + demanding customers’ = recipe for disaster.

The Third Sacrifice: Marketing

Now this should have been the first one, but maybe it wasn’t so obvious at the beginning. Who are you marketing to? Who are your customers? (at least the ones you want to attract) In any case, you have to slow it down because marketing may be between 4-6% or your revenue (not including cost of discounts), more if you’re a new business, and as a (now) discount brand that’s a lot!

The Final Sacrifice: The Business

By this point if you haven’t been able to find any dark matter you’ve seen your business take loss after loss, month after month, and it no longer makes sense to keep operating. With high demanding, budget sensitive, discount seeking, self-proclaimed experts-in-cooking-customers, your business cannot seem to satisfy their needs anymore, and one by one they drop off and migrate to a new business that will satisfy their shortsightedness.

Building a Sustainable Business Model

In conclusion, while discounts may seem like a quick fix for attracting customers and increasing sales, they can ultimately undermine the very essence of what makes dining out a memorable experience. From compromises in food quality and service standards to the erosion of ambiance and atmosphere, discounts have the potential to leave a lasting negative impact on a restaurant's reputation and future viability. By prioritizing quality, hospitality, and ambiance over short-term gains, restaurants can build a sustainable foundation for success that extends far beyond the allure of discounts.