I'm taking my wife out to dinner tonight. We've managed to become kid-free (not a small task), and so we're going out. I think we're going to try out a new mexican restaurant, so I decided to check out their menu in advance online.

First of all...I've discovered that their menu isn't online. That frustrates me...but that's another post.

Second of all, I've discovered that they have an online coupon, and it's a pretty good one. The coupon is for $5 off of a dinner purchase of $25. That's 20%! NICE! I'm glad I don't own the place.

Why? Well, the service that posts this coupon is well known to me, and I'm not a fan (from the restaurant ownership point of view). There's a few reasons why:

1. There's no limit on how many times I can print this coupon. I can only use one coupon per visit, but if I visit for the next seven days then I can print out seven coupons. 
2. I've seen the front door of the restaurant before. It has a sign saying that they offer coupons online, and they give the website address. Yes, that's right, on the door. (Let's just return to the car before going in so we can look up that coupon.)
3. The coupon is too costly. It is for $5 off of a $25 purchase. If it were for "buy one, get one free entrees", the coupon would likely be just as effective, and less costly. (Food cost on a $10 entree is probably about $2.00-$2.50 for Mexican food depending on the dish, so instead of giving away $5 they'd be giving away $2.50.)
4. The coupon website the restaurant is using requires that the restaurant have a coupon available at all times during the contract period (most likely 12 months). Habits form in 30-45 days, so the customers are going to get used to coupons, and only go when they have a coupon. Luckly for them; they can just print another. Not a good thing! Ask J.C. Penney about that.

So what could the restaurant do differently? Here are some ideas!

1. Run a coupon in a local paper and have an expiration date on it. How many newspapers do you buy each day?
2. Hang coupons with expiration dates on doors in the local neighborhood, or do a mailing to the local zip code.
3. Take coupons with expiration dates to local businesses.
4. Take treats and samples to local businesses, and hand out mini menus. (You don't always have to give away coupons; give away free samples instead.)
5. Don't put "We have coupons" on your front door. The guest is already there! You don't want them to touch that smart phone.
   
6. Do the math. See what it really costs to give away an appetizer, or a dessert, or an entree. Don't give away a monetary value; steer them to a specialty or to whatever menu item you feel highlights your restaurant best.
7. Don't sign a contract that forces you to do anything when it comes to coupons. Issue coupons when you need to, and don't issue them when you don't.
8. Give a discount on gift cards. People don't buy gift cards for places they don't like. Sell gift cards for a couple bucks less than their face value. Your customers that like you will buy them and "refer" others via gift cards.

So, "thank you" to the restaurant that inspired me to write this. My wife has arrived home from work and we're leaving soon. I'm looking forward to trying out my $5 off of $25 coupon. In the meantime, hopefully you'll read this post!

I was talking to a new restaurant owner not long ago, and he was very proud of the system that he had for finding the best deals from his food vendors. He explained how he talks to all of his vendors each week, has them submit bids, fills out a spreadsheet with updated pricing, and then splits up his purchases line-by-line. Based on the story that he told me, I can only imagine that it takes a few hours each week to find the best deals on all of the items that that restaurant needs to run: chicken, lettuce, etc. While the timing wasn't right to disagree, I do in fact disagree with his system.

I've worked for several large companies throughout my career, and all of them had one thing in common. They all worked with a couple hand-picked, and contracted vendors. You see, the companies that I worked for realized that it was best to review pricing once per year, and then pick the vendor with the best mix of service and price, and then get back to focusing on running our own business. A mentor of mine that I worked for years ago used to say, "You can't save yourself to profitability", and he was exactly right. 

Let's say you are looking at paper costs and want to buy a cheaper disposable napkin. You could hunt around each week and find out which company has the best price in the market for napkins, but in the end you're still going to have to buy napkins. It's impossible to bring the cost to zero. And while you are hunting around, burning your time, and comparing costs, what are you really saving? It's quite possible that any cost savings that you uncovered were completely devoured in your time spent, or the fact that you needed to drive to pick-up the napkins instead of getting delivery. Not to mention the fact that while you were crunching numbers there may have been food quality issues, service issues, or worse that weren't addressed because you were looking at a computer screen.

There's another issue with this system too: none of those vendors that your squeezing are really giving you their best price. And since there isn't a contract between you and your vendor, there probably aren't any limits on what percentages the vendor can raise prices. This can become extremely costly when the market price spikes on a particular item like coffee, chicken, beef or bacon (as is expected to happen next year in 2013).

You really can't save yourself to profitability. You can only cut so much. I propose that a better strategy is to "shop" vendors once per year and then sign an agreement with whichever vendors you choose. Then get back to work on things that really do improve profitability like a smart marketing plan, excellent service, a quality product delivered consistently, and building strong relationships with your guests and your community.