If you’re subscribed to Groupon, or one of the now umpteen other daily e-mail blasts offering discounted products from businesses in your neighborhood, it often feels like just one more thing to clog your inbox. But what if you do decide to take them up on a deal? What if you realize, Hey, I do need $40 worth of cupcakes for half the price? How do these deals actually affect the small businesses on the other side?
Launched in November 2008, Groupon estimates that their annual revenue has reached one billion dollars. Billion! So where does that leave the small business owner? How many of them are satisfied enough with the results to sign up to run another? Groupon tells us that 95 percent of merchants want to do it again. A study out of Rice University tells a different story: it’s more like 58 percent.
“It’s definitely a good way to get your name out there. If you stand behind your product, and can produce enough product, it’s worth it,” said Romel Tovar, the marketing manager of Grandaisy Bakery , which has three locations in New York City. He ran a promotion through Groupon in February of 2010: $15 worth of product for only seven bucks. That works out to a sandwich (on their fabulous bread) or slice of pizza (also baked right there) and a coffee, plus a loaf of bread to take home.
Tovar says they sold about 8,000 of the Groupons; about 6,500 people redeemed them.
One of the standard arguments against Groupon goes like this: if you are a small business that offers a good deal on Groupon, the next day, your store will be overwhelmed by a ravenous swarm of Grouponers. Ill-equipped to deal with the onslaught, you will either not be able to honor the coupons, or look inept in the process. Either way, it’s not good news for your business. But Tovar and others haven’t experience that problem firsthand.
At Grandaisy, “the turnout was pretty spread out. The day after it ran people came in to peruse, trying to figure out how they’d spend it later,” said Tovar. Some used it right away, others waited until the day before it expired. “People don’t like to plan ahead,” said Angie Dykshorn, the general manager of ChikaLicious, another dessert bar in Manhattan that has run two promotions through Groupon in the last year: spend $10, get $20 of cupcakes.
In order to nip any potential cupcake rushes in the bud, Dykshorn adds fine print to her Groupon, requiring her buyers to place orders 24 hours in advance. “People don’t like to read fine print, so they didn’t pay attention to it,” said Dykshorn, explaining that impulse shoppers appeared anyway, demanding that coupons be honored with no advance notice. That was a problem.
But she stuck to her guns and denied the customers who didn’t alert her a day ahead of time, figuring that those impulse first-time shoppers are not the type who are likely to become long-term customers. It was the only way her cramped East Village kitchen could keep up with orders and still have enough red velvets for the walk-in regulars, the backbone of her bottom-line.
In addition to the 3,272 cupcakes ChikaLicious bakes daily, Dykshorn’s team had to bake an additional 3,000 over the course of the first 10 days of the promotion--an increase of 10 percent daily that still required some extra planning (and a couple of extra helping hands) on Dykshorn’s part, but good planning helped her avoid the threat of a mob scene.
So how much was her check in the mail? Since Groupon keeps half, ChikaLicious only ended up with $5 per $20 of product they had to turn around. While it was nice to get that $16,000, for a small business owner with a tight budget, the promotion itself didn’t convert to any immediate profit. It’s really more about trying to hook in repeat customers, which means careful planning and timing are key to a successful promotion.
Over in Boston, Michael Fitzhenry of Mike and Patty's, a sandwich shop with a cult following, can barely keep up with foot traffic as is. “I don’t want to rest on my laurels but getting sandwiches out quicker is our problem, not getting people in. At least right now.” His elevator-sized space has enough seating for a friendly six.
But during Boston winters, it’s a different story. Nobody wants to wait outside, even for his killer fried green tomato BLT. It was the perfect time to run a Groupon promotion.
Would Fitzhenry do it again? If Mike and Patty’s opens a second location or adds dinner to the menu, he’d definitely use a Groupon to get the word out. For now, he’s not looking to give away free product.
Tovar and Dykshorn mostly agreed, explaining that ironically, now that Groupon is so large, the effectiveness of a campaign has actually been diluted. A small, focused coupon campaign can cater to a crowd that is likely to appreciate the product you have on offer and come back and spend money again at full price. The chronic deal-seekers that saturate Groupon are more interested in seeking out the next big deal than spending any meaningful amount of money at a small business.
Both Tovar and Dykshorn expressed interest in seeking out smaller, Groupon-like sites that cater to a more specific and well-targeted audience.
