Small business owners ‘fed up’ with Groupon and its clones

July 28, 2011 By Andrew Couts

A number of small business owners have begun to gripe about participating in daily deals from Groupon and its competitors — one of a variety of signs that the industry is about to take a hit.

A number of small business owners in San Francisco are tired of the swarm of pitches from Groupon and the wide variety of clone daily deals services, reports Business Insider. Their weariness comes just after a LivingSocial salesperson told the publication that the daily deals industry has reached its saturation point.

One business owner, Joe Hargraves, who runs Tacolicious, says he’s received around 40 pitches over the last year from various deals services, including Groupon. Hargraves says he has turned down all of them because his prices are already low, and doesn’t believe he’ll benefit much from a one-time deal that brings in customers who would likely never return.

Another owner, Mark Pastore of Incanto, calls daily deals and other forms of discount marketing “the lowest form of marketing, like puns are the lowest form of humor.” He too has been bombarded with pitches, about one or two a week from kids just out of college “who don’t know anything about anything.”

While this anecdotal evidence shouldn’t be taken as indicative of the attitudes of business as a whole, a recent survey of 300 business that participated in Groupon deals shows that 82 percent were dissatisfied with the number of return customers brought in by the deal, and half of those surveyed said they would not participate in future deals.

To add to the bad news for Groupon, the Wall Street Journal reports today that the Securities and Exchange Commission is allegedly investigating the accounting techniques used by the company to calculate its balance sheet in preparation for its forthcoming IPO.

None of this comes as any surprise to us. Our own Nick Mokey wrote back in May that the daily deals industry appears ripe for downsizing. Of course, none of this means Groupon and its competitors won’t continue to make money, either. But the signs don’t look particularly good.

Showing 14 comments

Michael Seals at 12:10am 29th July 2011 Feels like the daily deal maybe reaching it's tipping point with SMBs, surprised it's taken this long, the model doesn't work for so many. While researching whether or not to run one for our business we called 5 or 6 merchants who previously ran one and all were skeptical of it's value long term, given a loss was already had short term. I asked each one if a bargain hunter was their target audience, all said no. Not a shocker.
Chuck Eames at 10:06pm 28th July 2011 If it brings in a new customer, it's worth it. Restaurants give out deals all the time in other types of advertising. What's so different with Groupon? This articla makes no sense. It's another method of advertising which is an excellent idea and certainly can't be looked at negatively. Who wrote this idiotic article? And, no, I am not affiliated in any way with Groupon or advertising companies.
MightyD at 6:32pm 28th July 2011 The only ones that are really serious against Groupon is restaurants. Every other industry seems to benefit from brand awareness. Yoga studios do real good due to fixed cost. The more bodies, the more revenues that can be generated without additional expenses.Restaurants on the other hand, can't make it due to high expenses. I check my daily deals everyday and notice a significant drop in food deals. More and more restaurants are not jumping on the hype. The "Ugly Calculator" was the first to really give restaurants owner an inside look at the numbers. Execs must be shaking their heads.From a customer point of view, it's great. But I feel for the restaurant owners that a now generating repeat customers.
Alex Bell at 2:28pm 28th July 2011 This article seem kinda absurd. To me, this article implies that these business owners hate calls from Groupon, et all, but love all the calls they get from radio, tv, newspapers, magazines, credit card processing companies, led generation companies and every other online widget thingy for small businesses? I'm guessing these owners, if pressed, would report that they hate being sold ANYTHING.
Kristopher G Kyes at 5:47pm 28th July 2011 It is a voluntary process is it not? Ive heard of the Big Ass Sandwich debacle. Love those guys! They should have never done a group on, it is basically advertising and Lisa is such an incredible marketer that it was a waste. It does seem like food group on's would be the hardest, the margins are so thin to begin with.
Kristopher G Kyes at 5:47pm 28th July 2011 It is a voluntary process is it not? Ive heard of the Big Ass Sandwich debacle. Love those guys! They should have never done a group on, it is basically advertising and Lisa is such an incredible marketer that it was a waste. It does seem like food group on's would be the hardest, the margins are so thin to begin with.
Adam Brooks at 4:38pm 28th July 2011 Ask the proprietors of Big Ass Sandwiches food cart in Portland. They ended up being one of Groupon's first all weekend deals. If the deal is for 50% off and Groupon takes 50% of the sale, then BAS only gets 25 cents on the dollar. They had so many sold over the weekend it nearly put them out of business. The owners had not agreed to a 3-day sale of the deal. They finally had to start telling customers that they honor the value paid for the deal instead of the deal itself. It was either that or the deal would go to complete waste if the food cart no longer existed.I imagine a lot of extra regulation and stipulations have gone into the deal agreements since then. Still, it seems the only way for a company to make money on these deals is to generate repeat business or hope and pray people buy them and never use them.
Adam Brooks at 4:38pm 28th July 2011 Ask the proprietors of Big Ass Sandwiches food cart in Portland. They ended up being one of Groupon's first all weekend deals. If the deal is for 50% off and Groupon takes 50% of the sale, then BAS only gets 25 cents on the dollar. They had so many sold over the weekend it nearly put them out of business. The owners had not agreed to a 3-day sale of the deal. They finally had to start telling customers that they honor the value paid for the deal instead of the deal itself. It was either that or the deal would go to complete waste if the food cart no longer existed.I imagine a lot of extra regulation and stipulations have gone into the deal agreements since then. Still, it seems the only way for a company to make money on these deals is to generate repeat business or hope and pray people buy them and never use them.
Rusty Shackleford at 9:33am 28th July 2011 Who would have thought that catering to cheapasses would not be lucrative!
1. Ian Bell at 9:36am 28th July 2011 +1 totally true.
Rich Hansell at 4:32pm 28th July 2011 Groupon kills those small businesses. The math makes little sense for them. Sell x at 50% plus give 50% of that to groupon. So x is selling for 25% of cost with little return of business at regular margins. Yeah, sounds like a terrific deal for the small biz. Retail margins are like 40%. they are losing money on those types of items. For service items the margin may be different. But perhaps you'd like to offer 100 folks your 1 time service for 25% of the typical charge. Sounds awesome, right?
Rich Hansell at 4:32pm 28th July 2011 Groupon kills those small businesses. The math makes little sense for them. Sell x at 50% plus give 50% of that to groupon. So x is selling for 25% of cost with little return of business at regular margins. Yeah, sounds like a terrific deal for the small biz. Retail margins are like 40%. they are losing money on those types of items. For service items the margin may be different. But perhaps you'd like to offer 100 folks your 1 time service for 25% of the typical charge. Sounds awesome, right?
Chris Johnson at 4:15pm 28th July 2011 I'll play devil's advocate here:If I'm a business and I participate in a Groupon deal I'm bringing people into the door whom I might not normally have. 82% of these business say they're dissatisfied with the return customers but one must wonder if maybe it has to do with a poor quality service and/or too high of a standard price. Also, if a new customer doesn't enjoy the service, perhaps they would recommend it to someone who would.I'd like to see data on what a Groupon deal does to a companies bottom line to see if it really hurts a companies' profit or if it just hurts how MUCH profit they're going to make.
Chris Johnson at 4:15pm 28th July 2011 I'll play devil's advocate here:If I'm a business and I participate in a Groupon deal I'm bringing people into the door whom I might not normally have. 82% of these business say they're dissatisfied with the return customers but one must wonder if maybe it has to do with a poor quality service and/or too high of a standard price. Also, if a new customer doesn't enjoy the service, perhaps they would recommend it to someone who would.I'd like to see data on what a Groupon deal does to a companies bottom line to see if it really hurts a companies' profit or if it just hurts how MUCH profit they're going to make.