So imagine it's the Groupon heyday (2010-2012) & also imagine you own a restaurant-- you want customers and get call from a rep. For reference, your food costs are 30%+/-

Groupon rep comes in and sweet talks you or your manager into running a 50% discount but frames it as one or those $20 for $40 arrangements so it doesn't hurt so much for you to sign the contract.

Now Groupon isn't going to go to all the effort here without getting a taste themselves, right? They take 50% of your 50% so you'll get about a quarter. That's not exactly great economics to always take a loss when food costs are 30%.

But fine. All advertising costs money. And this Groupon thing definitely drives foot traffic, right? That's genuinely impressive and it WORKS...the problem is that it's the wrong kind of foot traffic.

Problem 1: Bargain-hunters. These are the coupon-cutters and very "high-maintenance/low-margin" type of customers. You don't want a lot of them, if any. You'll only see them again if you offer the same or "better" deal. Groupon will drive them to you by the busload b/c they're living on Groupon and it also makes it incredibly easy for them to just kind of coast from Groupon to Groupon. Groupon subverts the whole idea of a coupon-- coupons are supposed to be price discrimination. People with $$$ (in theory) don't bother with coupons because it's not worth their time. Groupon isn't a coupons. Coupons are supposed to be annoying/hard to use by design. No intention to paint with a broad bush, but most of the time these "bargain-hunter" people will look to spend EXACTLY $20 and not a penny more. They want to feel like they're getting their "deal." They also tend to complain the most, are the most demanding, and also for extra credit they're not good tippers. So your poor, overwhelmed/overworked staff dealing with a tsunami of new customers crowding the shop have now got to service customers who are never coming back and your staff won't get tipped out a lot if at all. Ouch!

Problem 2: Cannibalism. Imagine you have a great restaurant concept. You manage to survive w/ razor-thin margins, cut-throat competition, the great peanut/truffle shortage or whatever latest crisis. You also have a bunch of real "fans" who like your stuff and you might even call them regulars. They know about Groupon now too. So your regulars get on Groupon and instead of paying full freight they now are coming in for a discount. It's generally not a good thing when existing customers pay less without buying more-- thanks for the advertising Groupon! These people already like you and they now are paying less or worst case they become bargain-hunters themselves and stop coming altogether.

Bottom line: Almost fundamentally the thing didn't make sense. It had a "holy cow!" effect on restauranteurs because it absolutely did drive foot traffic (Groupon I think was the fastest-growing firm IN HUMAN HISTORY-- google it.) For diners, it seemed like the perfect crime: You can go out to eat but pay half and still get a full meal. The story/hypothesis was if you can get people in the door w/ a discount that they'll be so enamored with whatever you're making that they can't resist and will come back later. Other concepts figured maybe get them in the door and try to upsell them on extras.

Let's be VERY optimistic and say that phenomena was real and people looking for a discount came back to the restaurant. That is a handful of new customers. You still have the fundamental economic shakiness of the concept, the bargain-hunter/cannibalization issue, and the operational stress for decidedly "not-that-great" of a payoff.

It's a really impressive concept but probably not a great idea for most businesses. Perhaps it's a fit for multiple teeth whitening sessions or a service (manicures or something?) but for anything else it was a loser bet.