Are Restaurant Discounts Actually Worth It? The Hidden Cost of Filling Tables

A packed restaurant doesn't always mean a profitable one. And sometimes, the promotion filling your tables is also eating into your margins.

From discounted parmi nights and steak specials to half-price meals, promotions are a familiar part of South East Queensland's hospitality scene.

They're easy to understand, attractive to customers and can turn an otherwise quiet Tuesday into a busy service.

But here's the catch: more customers don't necessarily mean more profit.

A Cornell University study surveying 273 restaurant operators found that roughly as many reported losing money on daily deals as making money.

So, when does discounting actually work, and when is it costing restaurants more than it's worth?

The Hidden Cost of a 25% Discount

Let's say a restaurant sells a main course for $30, with $10 in food costs.

At full price, the restaurant earns $20 in contribution towards labour, rent and other operating expenses.

Introduce a 25% discount, and that contribution falls to $12.50.

Full priceDiscountedSelling price$30$22.50Food cost$10$10Contribution$20$12.50

Illustrative figures before GST adjustments and additional operating expenses.

That's a 37.5% reduction in contribution from a 25% discount.

To generate the same contribution as ten full-price meals, the restaurant would need to sell sixteen discounted meals.

In other words, 60% more meals just to make the same contribution.

And that's assuming food costs remain unchanged, with no additional labour or service expenses.

A promotion might bring in more customers and increase total sales, yet still leave the business financially worse off.

Are You Attracting New Customers or Discounting Existing Ones?

One of the biggest risks of discounting is something called revenue cannibalisation.

Essentially, it's when customers receive a discount on something they would have purchased at full price anyway.

A Cornell study of 931 US consumers found that 44% of restaurant social-coupon users were already frequent customers of the participating venue.

Consider the familiar weekly parmi special.

If a discounted meal attracts twenty additional customers on a typically quiet night, it could be a smart way to generate revenue from otherwise empty tables.

But if twenty existing customers simply switch from full-price meals to the discounted special, the restaurant may be giving away margin without creating much additional demand.

There's also a longer-term concern.

When customers become accustomed to regular discounts, some may start planning their visits around promotions rather than choosing the restaurant at its standard prices.

That's not necessarily a problem if the promotion remains profitable. But it becomes a risk when discounted dining replaces, rather than supplements, regular trade.

So, When Do Discounts Actually Work?

Discounting isn't inherently a bad strategy.

In fact, the same Cornell operator study found that approximately 40% of daily-deal purchasers were new customers. Operators also reported that 35% of first-time deal customers returned without another promotional incentive.

These findings suggest discounts can do more than temporarily fill seats. They can introduce customers who may continue supporting the business at regular prices.

The difference comes down to how they're used.

Discounts are generally more worthwhile when they:

• Fill genuinely quiet periods. An otherwise empty table represents an opportunity to generate additional contribution.

• Attract new customers. An introductory offer can encourage diners to try a venue they haven't visited before.

• Encourage additional spending. Drinks, sides and desserts may improve the overall value of a discounted transaction.

• Lead to repeat visits. A customer who returns at full price can make the initial promotional expense worthwhile.

However, timing matters.

Research published in the Journal of Service Research found that accounting for lost full-price revenue is important when evaluating early-bird and late-night restaurant specials (Thompson, 2015).

A discount that works during a quiet Wednesday lunch may make little financial sense during a busy Saturday dinner.

What If Discounting Isn't the Solution?

Before launching another promotion, restaurant owners should ask a more fundamental question:

Why aren't customers visiting in the first place?

If the problem is genuinely weak demand during certain trading periods, a targeted offer may help.

But if customers aren't discovering the restaurant, don't understand what makes it worth visiting, or simply aren't returning, reducing prices may only address the symptoms.

There are other ways to create demand without relying on discounts.

Improve local visibility. A well-optimised Google Business Profile, strong local SEO and consistent digital content can help customers discover a restaurant when they're deciding where to eat.

Give customers a reason to visit. Seasonal menus, chef specials, limited-time dishes and unique dining experiences can generate interest without lowering regular prices.

Build stronger customer relationships. Email marketing, loyalty initiatives and thoughtful follow-up communication can help turn occasional diners into repeat customers.

Create value without cutting prices. Set menus, dining packages and exclusive experiences can make an offer more appealing while giving operators greater control over their margins.

None of these strategies guarantees immediate results. But they can help build demand around the restaurant's offering, rather than making price the main reason customers visit.

Before Running Your Next Promotion, Ask These Three Questions

A successful discount should be measured by more than the number of bookings it generates.

1. Did it bring in genuinely new business?

Consider how many promotional customers would have visited without the offer. A busy service isn't necessarily evidence of incremental demand.

2. Did it improve profitability?

Look beyond total sales. Calculate the additional contribution generated after discounts, food costs and other variable expenses.

3. Did those customers come back?

Track whether first-time promotional customers return, how often they visit and whether they're willing to pay regular prices.

Without these answers, it's difficult to know whether a promotion is generating sustainable growth or simply creating short-term activity.

The Verdict: Are Restaurant Discounts Worth It?

Yes, when they're strategic. Not when they're a substitute for demand.

Discounting can help restaurants fill quieter services, introduce new customers and generate additional revenue. Used selectively, it can be a valuable part of a broader hospitality marketing strategy.

But frequent, poorly targeted promotions can erode margins, discount existing demand and make profitability increasingly dependent on volume.

For restaurant owners, the goal shouldn't be to fill every table at any cost.

It should be to attract customers who value the experience, return regularly and contribute to a profitable business.

Because the best promotion isn't necessarily the one that brings in the most customers. It's the one that brings in customers worth keeping.

About LaLuuCollective

LaLuuCollective is a Gold Coast-based hospitality marketing agency helping restaurants, cafés and hospitality businesses attract customers and grow through creative content, digital marketing and data-driven strategy.

We focus on building visibility, encouraging repeat visits and connecting marketing activity to measurable business outcomes.

Explore our hospitality marketing services.

Sources & Further Reading

1. Wu, J., Kimes, S.E. and Dholakia, U.M. (2012). Restaurant Daily Deals: The Operator Experience. Cornell Center for Hospitality Research.

A survey of 273 restaurant operators examining promotional profitability, customer acquisition and repeat visitation.

https://hdl.handle.net/1813/71168

2. Kimes, S.E. and Dholakia, U.M. (2011). Restaurant Daily Deals: Customers' Responses to Social Couponing. Cornell Center for Hospitality Research.

A study of 931 US consumers examining restaurant discount behaviour, existing customer participation and intentions to return.

https://hdl.handle.net/1813/71074

3. Thompson, G.M. (2015). 'Deciding Whether to Offer “Early-Bird” or “Night-Owl” Specials in Restaurants: A Cross-Functional View.' Journal of Service Research, 18(4), pp. 498–512.

Research examining off-peak restaurant promotions and the financial implications of cannibalising full-price demand.

https://doi.org/10.1177/1094670514568627

Research note: These studies examine historical US restaurant promotions. Their findings provide useful guidance on promotional economics and customer behaviour but should not be interpreted as current Australian hospitality benchmarks.