Groupon Fail: St. Louis business owners are souring on the once-mighty coupon startup

After accepting Groupon coupons for nearly six months, Clara Moore, the general manager and chef at Local Harvest Café & Catering, had almost forgotten about the 3,500 customers who'd jumped on the deal.

Until the last few weeks, that is, when hundreds of those people came rushing in.

After running the staff ragged, pissing off the regulars, cleaning the restaurant out of all but four items on the menu and posting several negative Yelp reviews about their experiences, the Groupon masses left Local Harvest stunned and exhausted. Moore could only say, or rather Tweet, one thing: "Sorry, we won't be doing Groupon again, guaranteed!"

For its first few years of rapid growth, Groupon seemed like a win-win-win: Customers got a great deal, such as a coupon for $40 worth of hamburgers for just $20. Businesses got new customers. And Groupon got roughly half the money exchanged in the transaction — enough to notch the Chicago-based company $713 million in revenue last year.

But the bloom is off the rose. Despite all that revenue, it turns out, Groupon isn't actually making a profit. The company actually had a net loss of $420 million in 2010 and $117 million within the first three months of this year, according to a prospectus it filed with the Securities and Exchange Commission. On September 6, the company postponed its once-ballyhooed initial public offering, making its decision to turn down a $6 billion offer from Google last December look pretty foolhardy.

And it's not just Wall Street souring on Groupon. It's businesses — the very businesses that Groupon's growth has depended on.

The problem goes back to that supposed win-win-win. Turns out it was mainly the customers winning; for many restaurants and shops, the details were a big problem.

Let's go back to that hamburger Groupon. If a customer pays $20 for food that would normally cost $40, half of the Groupon's cost — $10 — goes back to Groupon, leaving just $10 for a restaurant that's sold $40 worth of food. That's a pretty slim profit margin.

As a reaction, business owners are wising up and lowering the amount of the Groupon deals they sign on for. Instead of offering a $40 Groupon, restaurants and businesses now offer smaller deals, like a $15 Groupon. As Phil Ingram, owner of Delmar Restaurant & Lounge, explains, that encourages people to buy more than what's on the Groupon, which means more moolah for the restaurant.

But while that's good for businesses, for the customer, it seems to be contributing to a decline in Groupon awesomeness. The deals that everyone got used to buying, such as $15 for $30 worth of food, have shriveled up into remnants of their former selves. Deals now offering $10 for $15 worth of food or $6 for $12 are the mainstay.

Ingram agreed to run a deal this summer after declining several offers from Groupon. Groupon had approached him several times trying run a deal that discounted the alcohol. Ingram said no — that's his major cash cow. But in July, Groupon and Ingram worked out a deal that only discounts food.

Ingram says he's not even looking to come out ahead after his six-month deal is done. He just hopes to break even. All he wants to do is spread the word that the lounge is more than just a boozy hot spot.

"My food sales are so small that I'm looking for any way to grow them," he says.


There might be good reason that Delmar Restaurant & Lounge was able to get a leg up on the once-powerful Groupon: Groupon is facing a flood of imitators, all of them offering businesses a chance to shop around (and play hardball if need be).

Competitors including Facebook, LivingSocial and Eversave are copying the Groupon model. The parent company of Riverfront Times, Village Voice Media, along with Patch .com, St. Louis Magazine and the St. Louis Post-Dispatch now offer similar daily deals. There's even a site called, yep, Jewpon, which offers a "Jewish daily deal." The discounts are everywhere.

As a result, businesses now have more options when setting up massive coupon promotions. And consumers are taking their attention and their dollars to wherever they can find what they're looking for.

But when asked what it's doing to separate itself from these competitors, Groupon says nothing. Its focus, it says, is on offering the best deals with local shops.

Indeed, in light of a flood of bad publicity focused on overwhelmed business owners and muddy financial statements, Groupon isn't saying much of anything. When we tried to get specific numbers from Groupon spokesmen about what deals sell best in St. Louis, and whether Groupon deals have dropped off with the rise of competition, Groupon couldn't give us anything specific. All they said was this: The most popular Groupon category is a three-way tie between restaurant/culinary, health/spa/salon and activities like Spanish classes.

That information tells us zip.

So we did a little perusing of the Groupon website. We looked at deals in St. Louis, Columbia, Springfield and Kansas City.

Here's what we found — our deals might look like they're petering out, especially when one recent day featured a discount on gutter cleaning. But we shouldn't complain. The St. Louis Groupon site is one of only a few cities to use the Now! Deals on Groupon. Just enter your ZIP code, and all the restaurant deals near you pop up.

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37 comments
socialmedic
socialmedic

The problem is the price of wine. At this point I will not groupon anymore because the over-inflated price of wine on the meal will raise the cost CONSIDERABLY. If you are saving 10 dollars on a meal then why are you being asked to pay 10 to 15 dollars a glass for the wine you are having to enjoy that meal.??? I get better wine and food from whole foods

Roc
Roc

Something to add -- let's not forget that a lot of Groups that people buy expire and never get used. That's free money for the restaurant.

LocalRestaurantOwner
LocalRestaurantOwner

I did a Groupon style offer for my restaurant in 2010. We limited our sale to 1500 coupons, and we are glad we did. As stated here, we found that our coupon offering was too high ($25 coupon for $12) and we nearly lost our shirts. As with Local Harvest, 25% of the coupons were redeemed in the last week or two of the offer. Our bank account suffered as I had no money coming in for all of the food going out. Though these coupons are great for a value driven consumer, they are very bad for small independent restaurants. I don't believe I'll ever do them again.

Paul
Paul

The hand writing is on the wall. GoSteals.com is the future of the daily deals marketplace simply because it is absolutely totally free to both businesses and consumers. By way of background, GoSteals was formally launched by founder and CEO Nick Barkett at the prestigious Demo Fall 2011 this past September 14th in Santa Clara, CA. They were selected as one of 80~ new start-up companies out of hundreds of applicants, because of the creditability of their business model, their Mediaspectrum cloud computing web based technology, and its direct application/potential game changing impact on the marketplace. They are progressing as planned over these initial 4 weeks after launch. Currently deals are sparsely populated due to recent start up but that will change dramatically over these next 6 months as the popularity of the site increases. Currently, Groupon, LivingSocial and the hundreds of other daily dealers have a financial stranglehold hold on participating merchants in terms of cash flow and net profit. From the merchant's point of view their formula for a deal is half off the retail price, and then half of the remaining half eventually winds up in the merchant's pocket! It is understandable that merchants want to get their name out there, so they say, “Ok, let us do a deep discount to get some people in the seats, heads through the door or buyers to the web site”. Well how frequently and deep are they willing to go? Let’s say that you normally sell a Pizza for $20.00, then these daily dealers will sell it for $10.00, and then they will keep half of the remaining $10.00, and reluctantly give you the merchant the generous sum of $5.00. Translation -you, the merchant, now receive only 25% of the original $20.00 retail price, and in some cases you are forced to take that $5.00 in increments over a period of months! How can you possibly make money this way? Think about it! This makes no sense at all and the truth is that you cannot survive doing business this way, even if the deal results in a subsequent substantial increase in business volume. Smart businessmen, both small and large, across the globe know that they cannot survive in this current daily deals environment using this totally short term losing strategy regardless of any increase in their business volume. They recognize that continuing on this path will make the daily dealer's rich and will eventually put them out of business. Consequently, they are turning to GoSteals, which enables them to set up their own deals on their own terms without any fees or charges whatsoever to them or their customers. If you are a merchant, check out the Go Steals.com web site, and select Los Angeles (for example) so that you can see first hand the deals that are currently posted by local merchants. Feel free to contact them for their opinion first hand. If you so decide, you can easily create and post a deal in a matter of minutes, at absolutely no cost or obligation to you or your customers. You will find that there is no provision on the entire web site to support any financial transactions. Again, it is totally free. This means that in the above example you get to keep the total difference between your normal retail price and the deal price that you decide upon because you are not paying one cent to a third party. On average you can run the same deals on GoSteals and increase your gross margin by 25%. In addition, you can cancel the deal at any time by removing it whenever you wish even though you initially entered an expiration date at the time the deal was posted, thereby planning and limiting your time and financial exposure to fit in with your overall business strategy. You only honor coupons that customers "stole" during the deal posting period. Customers can browse, steal deals and pay only when they use them, which means that they have the power to steal deals for free, and then use them or not without upfront investment, so there is no risk of them having purchased a deal that might go unused. Please take a moment to browse the web sites as noted below. Also note that Nick is available to you, at your conveniences, should you have any questions or to meet with you as you deem necessary.

Company Video:http://bcove.me/v3fvo7ce Launch Video (9/14/11):https://s3.amazonaws.com/demof... Facebook:http://www.facebook.com/pages/... Mediaspectrum NewsRelease:http://www.mediaspectrum.net/i...

Marketwire Press Release:http://www.marketwire.com/pres...ContactSusie Doughertysdougherty@gosteals.com

Company Address2880 Zanker Rd. Suite 203San Jose, CA 95134

Primary PhoneNick Barkett, 978-304-2072URLwww.GoSteals.comTwitterhttp://www.twitter.com/GoSteal...

Officer OneNick Barkett - CEO

Officer TwoScott Killoh - Chairman

Officer ThreeTony Trousset

erica
erica

RFT, no one is buying the attitude you're trying to sell. Thanks for reminding us why reading your articles is a giant waste of time. Bye.

Anon
Anon

I've been observing just the opposite of what the reporter claims to be happening. I frequently dine solo, and the deals seem to be trending towards offers that only make sense for parties of 2 or more; the "$20 for $10", "$30 for $15" types. Unless it's an upscale place, a deal like that can't possibly be more than barely advantageous - if at all - for single diners. If the smaller deals are making a comeback - count me as one happy to see it.

Karl
Karl

Groupon can be good for bringing in new customers, but a well designed text marketing service can drive customer frequency and increase your sales.

KITTY
KITTY

Why run the same story again?

Coupon MarketingGuru
Coupon MarketingGuru

" Local Harvest had worked with Groupon to cap the number of deals sold at 3,500. They sold every one.

That was a shocker.

"I never thought we would sell that many," Earnest says."

The lesson here, which has been demonstrated time and time again, is that it doesn't matter how many you expect to sell. What matters, what is critical, is that the business owner works out many they can handle an set the cap at that. The restaurant knows the number of seats it has, the number of staff and the food and drink resources that it has.

If 3500 is too many, why did they settle for that number?

And hoping to sell more on the day is not a strategy. The business owners who make the deals work for them, design a deal that let's them present complementary products and services that they can cross-sell on the day. They train their staff and they ensure that front-of-house staff are compensated properly given that they rely on their tips to make a living. AND they set sensible limits on the number of vouchers sold so that customers are kept happy and some even return!

Although it is the ultimately the business owner's responsibility to set caps and price the deal properly, daily deal sites like Groupon should really not permit businesses to go so obviously beyond their capacity. It's harmful for all parties, the business, the customers and eventually the daily deal company as everyone grows weary of this.

(By the way, we run workshops for less than $20 to help small business learn how to avoid mistakes).

Cheated
Cheated

As far as the wait staff complaining of being stiffed, I can vouch for this personally. I am not a waiter, but a pizza delivery driver. Whenever we run a really good special, the cheap asses come out of the woodwork and then tip ridiculously small amounts or in many cases, nothing at all. I'm not looking to get rich, but I have expenses associated with my service (gas and excessive car repairs) that waiters / waitresses don't have. The bosses try to tell you that they are doing you a favor because the cheaper the product, the more the customer will tip. Bullshit! Not to mention they (the cheap asses) complain excessively. Here's a tip for the customer: If you're not going to tip, don't be a regular. Get my drift? Let me put it this way: A two or three dollar tip is the best money you've ever spent!

lovingparentof2
lovingparentof2

I wonder if restaurants would do better with Groupon if they had the offers be valid for a certain week only (one week) and for only one product (i.e. a certain appetizer). That way, the restaurant can premake extas of that one item only and be better prepared for the rush. The customers are still getting a deal, but it's with the direction and control of the restaurant without ruining the experience for the full-price paying customers.

OR the coupons can be valid on non-busy hours or days only. If you're going to get 50+% off, you don't mind having certain restrictions.

Just a thought....

lovingparentof2
lovingparentof2

What's the big shocker here? These are heavily discounted offers. People are going to flock to purchase them. If you're going to have the offer be valid for 6 months, you know that some people are going to redeem them immediately (within that same month), some will teeter in, but a huge majority will forget about the coupon until it's almost set to expire. That's what the "final rush" is about. Also, the businesses get print outs of the number of coupons sold and names. If they are diligent, they should be checking off the coupons and registering them as being "used" as they come in. A quick look on that list would show you how many are still outstanding.

What this article does not state is what happens to the money for the certificates that are never used. Many people do not know that Groupon will buy them back or reimburse you for unused coupons. But still, many will forget. Obviously, all those certificates that are forgotten are a 100% profit since no food will be given away in exchange.

I'm a big Groupon user (plus registered to many different markets/cities) but it's obvious that you need to be very careful which businesses offer the coupons, and which don't. It's obvious that the business isn't going to make money off the coupon. It's main intent is to introduce the customer to their business, and give them good enough service or product that they will return as a full-paying customer. What many companies do not realize though is that most people attracted to 50+% off offers would probably never pay full price for anything.

RETIRED1
RETIRED1

Groupon customers are penny pinching cheapskates,I wouldn't want them coming to a restaurant I owned!

Patrick Horine
Patrick Horine

I am the other owner of Local Harvest and this story does not accurately depict our experience with Groupon. While we did get very busy and some customers got upset, we never complained about it or regretted our decision. It was a choice we made and we weathered it fairly well. Groupon has contacted us and we've told them the same thing. I would probably advise other businesses our size to not do such a large scale Groupon, or other service, but we aren't whining about our experience. We knew what we were getting into and we made it through. Not only that, but our average daily sales are up overall after the Groupon dust has settled. The tone of this story misrepresents our experience.

Peter Fuller MBA
Peter Fuller MBA

My first reaction, why would someone think selling 3,500 coupons is a good idea. And then when it causes problems blame someone else. Coupons can work, if designed properly

KITTY
KITTY

Generally, when restaurants start accepting coupons they are hurting for business. Restaurants making a good profit never accept coupons. Why should they give up part of their revenue when business is good? Local Harvest is a prime example where coupons were not worth the paper they are printed on.

hotdogwaffles
hotdogwaffles

that was the longest promotional comment I have ever seen. Congrats Troll!

JP
JP

Text marketing. Even more annoying then Groupon...

erica
erica

I'm running workshops for $20 to help small businesses learn that trying to get free advertising via the comments section of blog posts is ineffective and annoying.

Cheated
Cheated

Just to be clear, I would NEVER do anything to anyone's food. I take my stiffs like a man. That cannot be said of others I have seen.

lovethekeys2
lovethekeys2

No I am a hard working full time mother with a child in college and if I can save money then that is exactly what I will do. If these coupons are offered I will buy them and I will use them the same as I use coupons at the grocery store. I am the person that has 30 coupons in line at the grocery store that saves a lot of money. Sorry not all can be independently wealthy or stupid with their money.

Jealousblues
Jealousblues

Clearly "Big Groupon" has gotten to you too

Mary
Mary

I'm not surprised the owner of Local Harvest said " this story does not accurately depict our experience with Groupon" Nothing the Riverfront Times prints is accurate, but hey, they don't care!! As long as it is a 'juicy' story--well, inuendo and lies are necessary!! Most of their reporters are nothing but sensationalists. The good news is that not many people read the Riverfront Times and the ones who do, take it as it is--a joke

Pkcontractor
Pkcontractor

You are right on money. We own an Indian restaurant in Berkeley. And there are 7 Indian restaurant in three block radius first we tried groupon And sold 224 vouchers our business did really well. Recently we tried groupon again we sold quite a few this we are doing terrible. We offer them (not happy order other entrees. )ilStill we get such a bad reviews some time I wonder whether it's created by our competitors. Yelp should have some independent reviewers and then do the posting. Otherwise this age any one can built anyone business or break anyone business

Epmgaw
Epmgaw

Really? Seriously? So, according to you, every single fast food chain in the US is hurting for business, and has been for many years, even McDonalds? Because, as you must surely know unless you live in a cave, they ALL issue and redeem millions of coupons a year. Seriously, how can you possibly NOT know this? OH, well, thanks for the laugh!

Coupon MarketingGuru
Coupon MarketingGuru

Hi Erica

We agree that simply adding advertising links and not contributing/commenting specifically about the article in question is annoying. We'd hope that the bulk of our comment above was a smidgen above just being banal or inane.

Sorry if the final line offended you, we were merely trying out the more direct method of letting people know some of the services we offer. We usually don't even include such a line and we participate in commenting simply to chip in thoughts that were perhaps not fully covered in the article. And we hope to be recognised eventually as a company that's genuinely working hard at improving the small businesses' results from daily deals.

Feel free to send us a DM on Twitter with the outline of your workshop - it is only of interest to us if your workshop provides effective alternatives on how to raise one's business profile. If you were using that comment as a way to cut us down and illicit mockery from others, even though we'd tried to offer some value* in our original comment, then I guess you've succeeded in your attempt at causing hurt.

* we understand the notion of value is subjective and debatable, the emphasis here is on the effort and intention

And apologies to anyone else who was offended by the inclusion of that original line.

Theother1gd
Theother1gd

Chain restaurants are not restaurants they are feed troffs for fat people who can't taste food only fats and salts. So real restaurants that produce real food don't need coupons...thanks for running up my health care fatty! Your the joke.

Martin
Martin

Just who is "WE"??

toooldfortech
toooldfortech

yeah, no real establishment has ever put out a coupon or advertised a special through a give away paper like the RFT, or in local magazines. Never. (check out the coupon section of this web site) Not in all of recorded history... Thanks for being a non-assuming, non-judgemental, kind human being... jacka$$...

 
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