Loss Leader

More companies are finding that Free Wi-Fi hot spots more than pay for the minimal infrastructure and ongoing broadband charges, by attracting customers.

John Wooley, chairman, CEO and president of restaurant chain Schlotzsky’s Inc. in Austin, isn’t so shy in sharing details of what he calls the “strong ROI” from the company’s free Wi-Fi service. Schlotzsky’s currently offers free Wi-Fi in 30 of its 600 company-owned or franchised Schlotzsky’s Delis. Wooley says he figures that the free Wi-Fi results in an additional 15,000 visits per restaurant per year by customers who spend an average of $7 per visit.
That means Wi-Fi service brings in more than $100,000 per year per outlet in return for an investment of about $8,000 per restaurant for wireless infrastructure, Wooley says. The largest continuing cost is backhaul to the Internet over 1.54Mbit/sec. T1 circuits, Wooley says. Since the cost of a T1 circuit varies from $300 to $700, depending on what part of the country you’re in, he says Schlotzsky’s would average those costs to induce existing franchisees to offer the service. (New franchisees will be required to offer free Wi-Fi, Wooley notes.)

This is versus the approach of places like Starbucks.

Free Wi-Fi is an alternative to paid services offered by companies such as Starbucks Corp., which, in partnership with T-Mobile USA, currently offers Wi-Fi service at rates ranging from $9.99 per day to $29.99 per month in 2,300 of its coffee shops.
Lovina McMurchy, director of Starbucks Interactive, says the paid Wi-Fi service helps attract customers after peak morning hours. And those who use it tend to be “high-income customers” who “come more often and stay longer,” she says. She declined to reveal the service’s impact on the company’s bottom line.

The offering of free service has some side benefits.

Wooley also uses the free Wi-Fi service as a high-tech marketing tool. When wireless users first connect to the Schlotzsky’s Wi-Fi network, they’re shunted to an in-house “splash” Web page that the chain uses to promote itself and its bill of fare.
Schlotzsky’s has even bought high-gain Wi-Fi antennas that transmit the splash page as far outside its restaurants as possible, Wooley says. One Austin outlet beams its signal into dorm rooms at the University of Texas, and another beams it into a competing Starbucks. This high-tech guerrilla marketing campaign to grab the eyeballs of potential customers is less expensive and potentially more targeted than buying a 30-second TV commercial, Wooley says.

The bottom line seems to be that more companies see this as a standard service, not an add-on cost for customers. Best analogy:

Panera Bread Co., based in Richmond Heights, Mo., has also embraced free Wi-Fi as a marketing tool and plans to offer the service in 130 of its 600 bakery cafes by year’s end, eventually extending the service chainwide. Ron Shaich, the company’s chairman and CEO, says he views free Wi-Fi as an amenity that has already started to attract and retain customers at what he calls a “minimal cost.”
In fact, Shaich considers free Wi-Fi to be such an essential marketing tool that he dismisses any discussion of ROI. “What is the ROI on a bathroom?” asked Shaich, pointing out that the day of pay restrooms in restaurants has long since passed.

(via BoingBoing)