Economics of Food Service and Coupons
September 2, 2009
Today we put together one of our almost-frugally creative meals: bought a large bag of chips and juice boxes from Trader Joe’s for double the volume, if not half the price, and used a BOGO coupon at the sandwich place for $7. The sandwiches are something like a cross between Subway and Quiznos, but much better overall.
It got me thinking about the advertising and coupon model. I know most businesses (should) have a line item or budget for advertising expenses, but for simplicity’s sake, let’s assume that at the end of the day, the income generated needs to cover all outflow.
A bit of research into Val-Pak revealed that I can’t get pricing for the actual cooperative mail campaign, which is basically those blue envelopes you see in the mail chock full of coupon goodness, but they do estimate that your reach is 400k potential customers in a given time period.
Many restaurants are advertising during this economic slump, and two for one deals seem most common. Sit down eateries tend to offer one free entree with the purchase of one full priced entree plus two beverages, or some variation on that theme. Much like gas stations, the sandwich shop expects to recoup revenue in the form of extras: drinks, chips, and salads on the side. I think we all know by now that drinks carry huge profit margins for the restaurant, and a commonly touted cost-reduction strategy is to drink water instead of the highly overpriced soda.
But how many people really do spend the extra money on chips, drinks, and side salads? How many need to, of those that use the coupons, for the business to recoup the coupon discount? And how many MORE are needed to make up for those of us who only use the coupon as intended without buying extras? And in addition to all that, how much did they spend on advertising in those Valu-Paks in the first place?
hehehe I don’t think you’ll ever know, that kind of information is proprietary and kept under close wraps no matter what company you’re talking about.
There is usually some complex calculations that involve ROI and NOS and such, as well as historical trending that are used to determine whether to issue coupons, for how much, which product, etc.
For Val Pak it would also come down to ROI. Sure you’re getting 400k impressions, but is it geo- or demo-targeted and what is the average redemption rate? (Redemption also depends on how good a coupon you’re giving away)
Haha we put a lot of thinking into stuff like this!
Coupons are such an interesting phenominon – we don’t have food coupons like you do in the US & Canada, but even if we did I’m not sure they’d help me based on what I buy.
Ginger: I know and I’m dying of curiosity. The forbidden information!
notesfromthefrugaltrenches: You don’t get coupons for the fresh stuff usually, but occasionally for some of the grains and such a decent coupon comes up.