Startups That Merge Online and Offline Services Are Sweeping China
blogs.wsj.com
blogs.wsj.com
Both taxi-hailing and Uber/Lyft-like services are popular here also. Discounts for users and incentives for drivers helped to drive initial adoption.
The article mentions Dianping, which is equivalent to Yelp. It used its comprehensive database of restaurants to create a niche when 'daily deal' sites became popular.
Uber also operates here, with three services:
- People's Uber (ride-sharing; about half the price of UberBLACK)
- UberX
- UberBLACK
I don't think restaurants pervasively discount because they can afford to - I think it's more to do with it being a brutally competitive industry.
That said you may be right in that the type of restaurants that use daily deal sites tend to be the higher profit ones, the corporate-run chains that have economies of scale or the ones that have lower running costs like Korean BBQs where the customer cooks their own food.
Yes, restaurants are high margin. I didn't say they are high profit.
Restaurants have high fixed costs (rent and staff) and low variable costs (the ingredients and beverages cost 30% to 50% of the price paid by the customer). Because they have high gross margins, they are still better off with an additional customer who pays 20% less than the sticker price of a meal. It's better than an empty table.
To understand the difference, compare this with a high _profit_ but low _margin_ business like UK supermarkets. Tesco makes about 5bn USD per year, but its gross margin is less than 7%. If Tesco gave a 20% discount to entice a customer away from a rival supermarket, Tesco would lose money on the sale.
This only applies to restaurants that have empty tables. Try going to Sunshine Kitchen around lunch or dinner...they aren't going to give us a deal (but there is delivery via online services so...).