September 27, 2016

Groupon’s Stock Tanks

The Wall Street Journal published a story today, finally reporting” heightened scrutiny about whether Groupon’s business model is flawed.” It looks as though the love affair that WSJ has had with Groupon, might be coming to an end. They wrote a series of features praising Groupon and the quirky founder.

Groupon, was bad for my business, and terrible for many local businesses. As a hyper- local magazine publisher, I wanted to promote the best local restaurants based on their ability to offer great food, value and something unique. Then Groupon  who tells local businesses that the best form of advertising is to offer their food 50% off. Groupon would then split the sales of these half-off vouchers. The final amount received by business owners was 25 percent of the total full-retail menu price.

This model shunned the notion of quality and value at full price.Groupon is just one of a few companies that  believe in this ridiculous business model that defies common sense. I witnessed several restaurants turn me away for conventional, targeted, local advertising because they believed Groupon was the greatest thing since sliced bread. The appeal of Groupon was evident especially when I spoke to struggling new restaurant owners.

They would tell me that Groupon just paid them $5 to $10 thousand dollars. This wonderful cash infusion would make them believers. But by the third or forth  Groupon sell off, their business would be a shadow of it’s former self: instead of offering a great value for full price customers,  corners were being cut; prices were raised and service was substandard. Then I watched Groupon’s stock sore to become  a $5 billion company.

Groupon’s customers were draining their resources, draining their spirit, funneling their profits to an inflated stock price. Finally, customers and businesses are cluing in that this model is pure stupidity.

Common Traits of Great Local Restaurants

Strong local restaurants are not gimicky.  They work to find a balance using the best possible quality ingredients, while still maintaining an appealing price point. This balance is not easy, many restaurant owners work so hard to achieve the greatest end result for the lowest price to a point they grow their own vegetables and herbs. They work tirelessly to create a special experience that keeps their loyal customers coming back. (A few that come to mind: Tin Angel, Rawtopia, Sages Cafe, Himalayan Kitchen, Mazza). The local movement is a return to quality over gimmicks. Groupon represents the worst of our culture, getting something for cheap– in attempt to “beat the system”.  They “system” Groupon attempted to beat is common sense.