Yesterday I wrote about the parody blog a doctor at the Center for Disease Control had posted that educated people in what to do if zombies attack. Well, zombies did attack in the Loop last week when the Hari Krishna-like Groupon gorilla marketers accosted people on the street waving their giant green foam fingers to get pedestrians’ attention about the new Groupon Now! Unfortunately nothing in the CDC emergency preparedness plan protected me from the lunatic Groupon Now! plague.
Groupon Now! differs from regular Groupon in that the discounted deal is only good for a few hours on the one day that it is being offered. To sweeten the deal, on Friday’s only, all Groupon Now! deals cost $1.00. This is great for consumers and insane for businesses to participate in.
I have already written three blogs about how the Groupon coupon model cannot sustain itself indefinitely as businesses realize that the cost of capturing a customer in this manner is too expensive.
Last Friday when the first Groupon Now! deals were announced, I was astounded that one of the offers was for a $30 meal at Geja’s restaurant for $1.00. I checked on-line for Geja’s menu and the chicken four-course Premiere Fondue Dinner includes: cheese fondue appetizer, salad, a mountain of assorted fresh vegetables, eight classic dipping sauces, flaming chocolate dessert fondue and freshly brewed coffee at a prix fixe of $32.95.
So for the $1 Groupon Now! Deal and an additional $2.95, one could eat better and cheaper than at McDonald’s. How can Geja’s possibly recover from selling a $32.95 meal for $3.45? (remember 50 cents of the dollar paid for the deal goes to Groupon) And remember that the deal is for a Friday night when a romantic restaurant like Geja’s should not have to be begging for customers.
The Chicago Tribune reported,“The Lincoln Park fondue restaurant has set aside a block of tables for Groupon Now users, who must make a reservation and come in from 5 to 10:30 p.m. Jeff Lawler, managing partner at Geja's Cafe, said 25 percent of his daily business comes from the surrounding neighborhood. ‘I might as well continue to market in my backyard, and this is one of those programs that will allow for it,’ Lawler said.” He forgot to figure out whether people will return and pay $32.95 for something they had already received for only $3.95.
I spoke to several proprietors and managers of restaurants and asked them how the percentages broke down on revenue. The amounts differed slightly depending on the level of dining but the consensus was that each dollar of revenue broke down approximately as follows:
25% -Food
25%-Staff
10%- Rent
30% -Leased equip. repairs, utilities, licenses, supplies, loan payments, etc.
10%-Profit (if lucky!)
If we use those same percentages and apply them to a Geja’s regularly priced chicken dinner, Lawler would show a profit of $3.29 per customer. That means it costs the restaurant $29.65 to bring the Groupon Now! customer to the table. That same patron would have to come back 10 more times for Geja’s to just break even on the Groupon Now! deal. How often does one go for fondue? Not ten times a year; maybe ten times a lifetime!
So the final question is, will Geja’s go broke Now! or later?
Ron writes:
ReplyDelete"I get pedicures at a small place in Evanston, a one to three person spa.
The owner, looking to increase business, signed on with Groupon. It was far more than she bargained for. In the first 2 hours there were hundreds that signed on. She was overwhelmed and tried to get removed from the site.Groupon told her that she was committed until the end of that particular day. She is a nervous wreck because she cant handle that volume. . One individual that wanted to come in for a Saturday massage in May had to take an appointment in August.
Of course she isn’t doing that again."
Amanda writes:
ReplyDelete"But with Groupon Now the merchants are in control of everything. The days and hours that the deal is redeemable; the terms of the deal, including the discount % offered to customers; the maximum number of customers permitted per deal; the recurring schedule of deals; creating, pausing, and resuming their deals at any time, etc. Whether Geja goes broke now or later is completely up to them!"
Great analysis. I still can't believe people take Groupon seriously. They will probably crash and burn within 6 months of their IPO if they are lucky enough to get it out.
ReplyDelete