Suzzette Metcalfe, owner of Milwaukee’s Pasta Tree restaurant, picked up some marketing advice at a recent restaurant industry seminar in Las Vegas: Do not do Groupon.
“But I’d already done it,” Metcalfe said. In fact, Pasta Tree’s recent Groupon offer of $40 worth of food and drink for $20 broke a local record for the category, selling 5,061 “Groupons.”
Merchants like Metcalfe typically lose money on every Groupon deal they sell. But daily deal websites like Groupon and competitor LivingSocial have been such a big hit with consumers that more and more businesses are signing on.
It works like this: Groupon and Living Social develop email networks of consumers who want to see deals. Businesses sign up with deeply discounted offers – typically 50 percent off – for goods or services. The consumer buys and pays for the offer and has a set period in which to redeem the coupon.
Groupon pays the merchant upfront but keeps half the purchase price of each offer, plus a charge to the merchant for the credit card transaction fee. That adds up, for example, to less than $10 to the merchant for each $20 Groupon offer purchased. The consumer then redeems that offer for $40 worth of goods or services. If some consumers don’t redeem their Groupons, the merchant still keeps the money.
Since its launch in 2008, Groupon has sold 37 million deals in North America and has saved consumers $1.5 billion, a company spokesman said.
Jon Olsen, co-owner of the local deal advice website MilwaukeeConsumer.com, said he’s seen little downside for consumers who take advantage of Groupon offers.
“Ninety-nine percent of consumer experiences are positive,” Olsen said. In the rare cases where there have been problems, Groupon has been good about making it right and giving refunds, he said.
But from the merchant’s standpoint, there are a lot of negatives, Olsen said.
“The merchant really needs to do their homework before they sign on to a deal like this,” he said.
Brian Benecky, owner of Fan Appreciation, a sports apparel store in Brookfield, Wis., offered a Groupon deal of $40 worth of merchandise for $20 on the weekend before the Super Bowl. He signed up for the deal about two months before that and had no idea that the Packers would make it the championship.
Groupon sold 550 of the Fan Appreciation deals, which expire in May. As of late March, about 60 percent of the buyers had come in to redeem their Groupons.
“If the customer spends exactly $40, you lose money,” Benecky said. But the customer knows about the store and may come back again, he said. He also saw a big spike in his website traffic the day the Groupon offer ran, giving him more exposure.
“I could see doing something like it once a year,” Benecky said.
Dick Seesel, a Mequon, Wis., retail consultant, bought a Groupon deal for a neighborhood restaurant recently, then tried to use it right away. “For three days, we couldn’t get near the restaurant.”
That’s a common problem, business owners say. Merchants get slammed with customers immediately after an offer sells, then again in the days right before it expires.
Attracting new customers is the biggest reason merchants cite for using the social discount offers.
That happens, but merchants say they also attract a type of consumer that has become known as a “Grouponer” – a person who buys the half-price offers with the intent of always getting a deal, but not returning to buy anything at regular price.
“Overall, long term, we probably picked up a few more customers,” said Mary Ziegler, owner of Half Nuts, a candy shop in West Allis, Wis. “But for what it cost, we’d have to sit down and do the math. I’m not sure I’d ever do it again.”