How Restaurant.com Works
Restaurant.com sells gift certificates to local restaurants at deep discounts. Their normal price is $10 for a $25 gift certificate, but they often run promotions where you can buy the same $25 gift certificate for just $2 or $3.
$25 worth of food for $2! What’s the catch?
Each restaurant has their own set of restrictions. Some of the most common Restaurant.com restrictions:
- Minimum purchase ($35 or $50)
- Dine-in only
- Not valid Friday or Saturday night
- Alcohol does not count toward minimum purchase
- Not valid toward tax or tip
- Limit 1 per table
- Not valid with any other offers
- Expires 1 year from date of issue (except in CA where apparently it is illegal for gift certificates to expire)
The Business of Restaurant.com
I couldn’t find out for sure, but I don’t think Restaurant.com has a revenue-share agreement with the restaurants themselves. Meaning whatever they charge for the gift certificate, Restaurant.com keeps 100% of the proceeds.
So restaurants are essentially “giving away” $25 gift certificates to get people in the door. Why would a restaurant sign up for this “service?”
- Attract new customers. Having a gift certificate mitigates risk for new customers to try a new restaurant. Maybe they’ll become regulars. Or maybe they’ll become regulars who always come armed with a Restaurant.com gift certificate.
- Fill empty tables. Empty tables are a huge opportunity cost for restaurants. Their overhead is the same whether the place is empty or packed, so might as well fill it, even if it is with low-profit-margin customers.
- Attract large parties. Sometimes customers will come with a group of 4-6, which will more than make up for the discount given.
- Customer feedback. Restaurant.com’s online system surveys each customer after they redeem their gift certificate. While this feature is less valuable now that sites like Yelp are popular, it is still a chance for the restaurant to get candid feedback from customers.
- Gives the restaurant an online presence. Obviously this feature was a bigger selling point back in 1999 before every restaurant had their own website, but is still preferable to have more web “real estate” than less.
- Cost-per-acquisition comparable or less than other advertising. As far as I can tell, Restaurant.com is “free” for restaurants to sign up. They just have to be willing to basically give discounts on customer checks, after certain criteria are met. Relative to Val-Pak or other print, online, or radio advertising, Restaurant.com may actually be a cheaper method of customer acquisition.
So Restaurant.com makes their money selling gift certificates someone else has to honor.
I have to admire any business with a gross margin of 100%! Clearly, they have some infrastructure costs, website maintenance, etc. But their biggest cost has to be the sales staff required to sign up new restaurants and keep current accounts happy.
Restaurant.com Expert Tips
- Read the fine print. Look for restaurants with a low minimum purchase, without day-of-week restrictions, and without exclusions on what you can order (alcohol, etc).
- Check Yelp to see if the place is any good. Getting a good deal on bad food isn’t really that good a deal.
- Search for promo codes. You can usually find one for 50-70% off — meaning your $25 gift certificate will only be $3 – $5 instead of the $10 regular price.
Here’s my “real life” example. I searched our zip code on Restaurant.com and found a list of restaurants. Some I’d heard of and some I’d even eaten at, but most were unfamiliar. I was attracted to Mexxi’s Restaurant and Catering in nearby San Ramon. Time to work the system.
- Restrictions: Minimum purchase $35, dine-in only, not valid toward tax or gratuity. This means drinks count toward your $35, and you can go any day of the week. Awesome.
- Yelp. 4 Stars. Also a 2009 “Best of the Bay” winner. Score.
- Promo code. In under 5 seconds I found a code for 80% off. Sweet.
So for $2, I acquired a $25 gift certificate to Mexxi’s.
Restaurant.com Cost Example
How will the math work once we go and eat?
Let’s say we order the minimum $35. Add in tax (10%) and gratuity (18%) and the new total is $44.80… call it $45. Knock off the $25 gift certificate and we owe $20. Add in the $2 I paid for the gift certificate, and the out-of-pocket total is $22. More than half off, not a bad deal!
For the restaurant though, maybe it’s not the greatest deal. Of our $20 spent at the restaurant, $9.80 was tax and tip.
Not being familiar with typical margins at Mexican restaurants, I can’t say whether or not Mexxi’s will make money collecting $10.20 on a $35 check. My guess is they at least break-even or else they wouldn’t be signed up with Restaurant.com.