Evaluating Restaurants' Profitability of a Daily Deal Promotion

Although group buying daily deal sites are widely popular among consumers, it is unclear if deal promotions are profitable for merchants, especially for restaurants. The goal of this study is: (1) to investigate if restaurants make profit from a group buying deal, break even or make significant investment and (2) to find out what factors affect deal profitability. A model for calculating the short-term profitability of restaurant's deal promotions is developed, and ten variables are identified and tested using linear regression analysis to find the once affecting deal profitability measured by return on investment. The research was conducted on the case of Grouper.mk, the leading deal platform in Macedonia. Findings show that deal promotions are profitable and effective tool for restaurants. Deal promotions that provide takeout are less profitable for restaurants, while those that offer additional discount on extra purchases are more profitable for restaurants. Employees effort to upsell have positive impact on deal profitability. However, profitability varies across restaurants category, from least profitable for fast food restaurants to most profitable for fine dining restaurants. Based on the findings of this research, recommendations for maximizing the deal profitability are provided.