subject: Growing with Groupon may be dangerous for businesses [print this page] Growing with Groupon may be dangerous for businesses
The online group-buying model pioneered by Groupon has become big business, so much so that it's creating growing pains for both the Chicago-based company and the small businesses it's supposed to help.
Greg Gibbs, owner of Chicago Bagel Authority in Lincoln Park, felt this pain firsthand when he signed on with Groupon for a deal-of-the-day in January. His promotion, which cost $3 for an $8 voucher good for any menu item, sold nearly 10,000 Groupons, 10 times more than the top end of Gibbs' expectations.
"This will end up being the year of the Groupon for us, and that's not a good thing," Gibbs said. "We'll count it as a loss. "
After splitting 50 percent of the revenue with Groupon, a standard deal for most businesses, the shop netted about $15,000 for $80,000 worth of food. Gibbs said the promotion hasn't yet translated into additional revenue.
"We just don't get the kind of customer that we want to come back," said Gibbs, who saw patrons put items back if their total exceeded $8. "It's a lot of people that come once for the discount, nobody tips, and they're all trying to squeeze it into the exact dollar amount."
"Let the seller beware," a twist on the old commerce maxim, has become the mantra for a growing list of local merchants that have been overwhelmed by the response to Groupon's popular model. The site offers new deals every day at a deep discount if a minimum threshold of buyers participate.
Groupon has more than 500,000 subscribers in the Chicago area, and an onslaught of rivals has emerged with nearly identical business models. Groupon said it's counted more than 500 copycats worldwide. like http://www.cupomdescontao.com.br in Brazil.
"The challenge (for local businesses) is that the way Groupon is constructed today, it's going to go throughout the Chicago area," said Mark Goodman, workshop chair at Score Chicago, a nonprofit association that counsels small businesses. "It runs the risk of giving you distribution beyond what's logical for your business. That's why sitting back and saying, 'What is my business and marketing plan?' is really important."
Groupon spokeswoman Julie Mossler said the company has multiple strategies to manage its increasing scale without alienating small businesses or consumers.
"We certainly believe in learning from past experiences," Mossler said, noting that the company has added staff to its merchant service team. "We've had (sales) representatives go through even more detailed training in terms of different recommendations they can make.
Groupon Revenue Hit $760 Million, CEO Memo Shows
Daily deals website Groupon Inc. saw its revenue surge to $760 million last year from $33 million the previous year, with more than a third of its 2010 sales coming from outside the U.S., according to an internal memo.
The email, sent by Groupon Chief Executive Andrew Mason to staffers in early January, also reveals the founder's grand ambitions for the company he started three years ago. Mr. Mason writes that he hopes to achieve "billions in revenue" in 2011. "By this time next year, we will either be on our way to becoming one of the great technology brands that define our generation, or a cool idea by people who were out executed and out innovated by others that were smarter and harder working," he wrote in the message, which was reviewed by The Wall Street Journal.
Mr. Mason and a Groupon spokesman didn't respond to requests for comment.
The Chicago-based company spurned a $6 billion takeover bid from Google Inc. in December and went on to raise $950 million in financing from private investors early this year. It is also preparing for an initial public offering later this year that could raise $1 billion, people familiar with the matter have said.
Groupon had grown to more than 4,000 employees and expanded to 565 cities at the end of 2010, up from about 120 employees and 30 cities in 2009, according to the memo. Some of that growth has been fueled by the acquisition of rivals in Europe and Asia. Overseas activity represented about $285 million of its revenues last year and almost three-quarters of its employees.
The company, which is known primarily for offering online coupons for local merchants, is also moving to generate sales from national retailers. According to the memo, "national deals" accounted for 12% of revenue in the fourth quarter of 2010.
Groupon now has 60 million subscribers to the email it sends to promote deals, and hopes to increase that number three-fold, to 150 million, by the end of this year. The company also hopes to generate more revenue that doesn't rely on this email blast. In the memo, Mr. Mason wrote that he hopes for, "at least $1B in revenue from new products we launch in 2011, not just the current daily email."
