Perhaps, the greatest threat to Groupon’s supremacy over restaurant Internet discounting is not services with similar daily deal models (like LivingSocial, Google Offers,etc.), but competitors that approach Internet discount in a different way. The most impressive addition to this new breed of discounting is Savored, a rapidly expanding startup which has moved discounting design over to restaurants.

How Savored Works

In Savored’s case, customers pay $10 for a reservation (which Savored takes) and received 30% off their entire bill. In essence, customers are footing the bill for the service that announces the deal, while the restaurants eat the discount (but are able to set greater conditions than with Groupon such as excluding prix-fixe meals).

Savored, originally named Village Vines, appeals to high-end restaurants that do not want to coupon (undermining their brand) and to discount recklessly (at the end of the day a restaurant keeps only 25% from a Groupon Daily Deal). Because customers are aware of these flaws in Groupon, they play off each other making a restaurant seem desperate and not worth their normal prices.

As far as I know, the $10 reservation fee does three things. It compensates Savored reasonably (much more modestly than Groupon) and it encourages customers to run up their bill. Also, while customers have some idea about where the money goes with Groupon, Savored makes it quite clear for customers.

Other differences exist that depart from what we are used to with other Internet discounting. Even though this is becoming less important with Groupon, no one restaurant is featured, other than getting higher visibility. Every restaurant runs their offer simultaneously, which could be a recipe for disaster.

Catch 22: The Possibility of Getting Too Much of a Good Thing

Now, there is a catch: every restaurant on Savored is running the same discount essentially. So although it lowers the barrier for customers to visit a restaurant, it presents a problem if almost every high-end restaurant signs up (which of course Savored won’t mind). There would be no marketing advantage, and lead to little increase in traffic. In Manhattan, 196 restaurants are on Savored. I’d say 90% or more are in Manhattan. There are approximately 1,200 high end restaurants in Manhattan. That means more than 15 % are already onboard with Savored. But as more restaurants join, there will be diminishing returns (with the same discount), killing its marketing effect.

Restaurants must ask: what happens if Savored keeps growing? Will the model slightly change? Or will Savored go for an OpenTable-like leaching of the industry (where if you don’t sign up, you will be left out and hurt)? Are fine dining restaurants making a deal with the devil for their industry? Savored has already set up partnerships with Zagats and OpenTable, which makes their intentions less clear. Also down the road, the prospect of Savored being bought out by OpenTable when the owners feel like they can get an maximum return worries us.

Savored may realize this and try to counter this development but it sets up a paradox that restaurants cannot stomach (or survive) more than a 30% discount (whether it’s given to customers or Savored), making it less desirable for restaurants. Ultimately though, it may become expected. Plus many of the restaurants that signed up initially would be angered by Savored taking a cut.

I believe the only way for it to work is for restaurants to be given the capability of offering discounts in a more flexible range, but Savored could be aiming for an OpenTable-like situation where only the cream of the crop (armed with Michelin ratings or stellar NY Times reviews) would be able to avoid participation.  I plan on writing a letter to Savored to see what their long term designs are along with contacting some reps before this gets out of control. High end restaurants should have the right to not discount and still receive business. And restaurants that discount should be able to benefit. A balance is needed and, as Savored may soon control the market, shouldn’t kill 30% of the revenue from these restaurants just for their $10.

Of course, a little mathematical modeling and some flexibility in discounting (perhaps a range from 20% to 30%) may keep this under control along with a viable competitor or two. But the threat is real as word spreads. Let’s hope we get some assurances, so the party continues without any ill-will.

Now and The Future: What You Should Do

Overall, in principle, we welcome different models for online discounting. Variation can only be good, and maybe other highly desirable models for restaurants and customers will check Savored if it does become too big and stop serving the interests of the restaurant industry.

If you are an owner of a fine dining restaurant, I advise you to take this very seriously as an opportunity and possibly a threat. Savored is for real: a few of our clients have chosen Savored and have seen real results. Yet, we hope the monopolistic tendency we saw with OpenTable does not spread and the only thing Savored threatens is Groupon and reckless discounting. Expect updates as we find out more about Savored.