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back to article Groupon offer burns cupcake baker’s profits

A British baker has seen her entire annual profits wiped out after a Groupon deal went horribly awry. The Need a Cake bakery in Reading, Berkshire, signed up with Groupon to offer a 75 per cent discount on an order of a dozen cupcakes, cutting the cost from £26 to £6.25. Unfortunately for the small bakery, the offer proved too …

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Silver badge

Groupon strikes again

Groupon makes money by selling coupons, not by caring what's in the best interests of the business. That's the fundamental issue businesses need to realise. They trousered nearly £26000 from customers so what do they care if she can cope or not? They'll move onto the next naive trusting business, and when they've burned out one region they'll expand into another. Look at the daily deals that remain once been through - service industry crap like car washes, eyebrow waxes and so on..

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Go

No such thing as bad publicity?

On the plus side, I now know there's a decent, hard working bakery in Reading and after reading the plight of this poor soul, I'm likely to remember them. Hiring extra staff and working to 3am to try to remedy the marketing gaffe shows they are trustworthy.

I'm willing to bet this will, absurdly, work out in their favour as the word gets out and hopefully they'll make their profit back with more on top.

If ever I'm in desperate need of a dozen cupcakes, I know who to phone!

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meh

It'd be nice to think you are correct but the truth is that most people will have totally forgotten about this story an after reading it.

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FAIL

Dragons Den

She wouldn't do very well on Dragons Den.

Shirley she would have thought that she couldn't make more than (for example) 1000 cake packages and limited it to that target amount. Doesn't seem a very savvy business woman to me.

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I despair. If you know your profit margin, try not to completely undercut yourself by advertising huge discount on massively popular website. The purpose is to drive people to your store. If something goes better than anticipated it shouldn't result in business turmoil.

Try 25% next time.

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Anonymous Coward

Why is this downvoted? What 'cos a hard working person is supposedly being put down the "the man"?

It makes sense, this is a confectionary company and companies are run to make profit not to serve as bloody charities. I am not going to have a go the baker's in question, they seemed to have made a genuine mistake but by the same token if you're running a business and you need to drop prices to bring in custom, you make sure that if the worse case happens and you have to meet every "free giveaway" offered, that you don't end up out on your arse! That's simple business sense.

This company are obviously good at their business, they got it off the ground and managed to make it a going concern in these tough times but they made a serious cock-up, hopefully one they can recover from. They have learned a valuable lesson that most of of us out here in consumer land are greedy bastards who put a pack of vultures to shame when there is something cheap in the offing.

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FAIL

Not the first, not the last...

I wonder how this is going to affect Groupon's share price...

The funny thing is, stories like this have been very common, albeit not this wildly out of control. Groupon's MO seems to be targeting small businesses whose owners are either desperate for traffic (already a bad sign) or greedy enough to think that all these new customers will empty their wallets once they're in the shop for the item on offer.

I've used Groupon once, and it was for a major national retailer offering a too-good-to-ignore price on a service that's insanely high margin. I didn't feel too bad because (a) the retailer isn't going to notice the difference at scale, and (b) plenty of non-Grouponers pay the full markup, so they're doing fine. Now, doing this to a small business person who is pulling out the last weapon in the armoury before bankruptcy? Not so nice...

It is nice to see that the business owner isn't trying to weasel out of the deal, as I probably would have expected. It takes integrity to admit that you miscalculated and pay for your mistake, as I'm sure this bakery owner isn't happy about wiping out a years' profits.

Yet another example of how the laws of profit and loss aren't suspended once the Internet gets involved.

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Anonymous Coward

If you have a good product and some customers, there is no reason to use Groupon.

If you are about to go out of business, then use Groupon.

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Strange...

I use Groupon to tell me what restaurants to avoid.

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Sorry, but the baker needs maths lessons

A £26 product being sold for £6 means she is making £20 less per sale (gasp!) which is a 77% discount. She should have worked out if she can make the cakes for £6 and pay for the labour without making a loss. If she intended to make a loss because she sees it as a marketing campaign to obtain publicity and reputation then she should have worked out how much she would lose per sale and how many sales it would take to reach her budget (how much she's prepared to lose) and to project a best and worst case outcome.

One problem with e-coupons is there is no control over the number that can be printed.

I do admire her commitment to honouring the offer and not dropping her high standards despite the financial loss.

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It's not the sum, it's the peak

When you deal with Groupon, you agree a promotion duration, and Groupon are supposed to release the vouchers over this period.

This is yet another case of Groupon getting greedy, pushing one deal and selling all the coupons in one big lump.

The baker could probably have dealt with effects of the discount if the coupons had been presented at a slow, steady rate as one would have expected. It's the presentation of such a large chunk of the promo in one go that has nearly killed the business.

This is the most common complaint I've heard about Groupon, but then the only people I know who've used it are in catering and hospitality. The second most common complaint is that it either attracts freeloaders who won't come back, or it converts your regular customers into loss-makers for the duration of the promo.

Groupon is poison for any business that has a per-sale cost.

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FAIL

Yep, I've heard the same thing from a few people, notably from a friend who manages a restaurant in Bristol. The owners decided to put a meal deal on groupon which left my friend having to find a way to feed hoards of customers for a tiny price whilst still turning a profit.

Needless to say, she got the blame when they lost out, despite never having been consulted.

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Dodgy link?

I'm a bit surprised at El Reg linking to a site like watchcartoononline.com. They're illegal, innit?

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but on the plus side....

...Groupon made over £26,500

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Trading Standards

I just wonder whether she is entitled to sue Groupon for advising her on something that was obviously against her own self-interest, particularly if they helped her come up with the sale price.

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Lost £12,000

Gained at least £200,000 advertising, maybe the best deal the lady ever made.

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FOOLISH COMMENT

maybe if you were in business and a bit more savvy you would realise that Groupon customers are bargain hunters moving from one bargain to another the great majority never ever intending to pay full price EVER..

They are Groupon customers not customers of the business. I have seen this happen to four businesses I deal with. In each case they lost substantial amounts of money.

They target small businesses with glossy promises that cannot be delivered. How many repeat it?

Groupon has less than two years left before it folds and most people will be wise to it.

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and you don't even have to look very far from Reading for another recent example.

2 miles away to be exact http://www.getreading.co.uk/news/s/2103359_table_for_1236_please

This one was a pub restaurant where it was physically impossible to meet demand because they simply didn't have enough tables.

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Silver badge

Example

Restaurant offers deal, £90 for two discounted to £25.

Groupon sells 600 vouchers, takes a cut of the discount price. Restaurant gets £15 per voucher.

For the next 3 weeks restaurant is full at weekends with Groupon customers eventhough they would have been busy without them.

Restaurant begins losing money,

Groupon customers continue to book but told by restaurant all tables are booked months in advance.

Groupon customers complain voucher is now worthless.

What A business model.

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Anonymous Coward

"Groupon: Repeat customers... Who needs 'em?"

Brid-Aine Parnell in article posted under Financial News, 27th October 2011 12:16 GMT in The Register covered Groupon's business model. Sadly the poor cup-cake baker's story will repeated again and again.

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Trollface

Groupon will be the least of her worries...

...if Apple spot the iPhone cake on her birthday cakes page!!

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How many trademarks?

Apple will be the least of her worries when Nestlé (Kit Kat) and the owners of various cartoon characters (especially Disney) cop a look at her gallery.

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FAIL

Brand burners

I see #qantasluxury is trying hard to make a place in the textbooks as an example of an ill-planned and badly-timed social media campaign on Twitter.

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Flame

Cupcakes

Fairy cakes are obviously not covered in sufficient quantities of pastel coloured post-feminist bullshit icing.

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She made even more of a loss...

The thing is, she offered that discount but then Groupon take half the actual sale offer price as well. Ouch. Groupon can work for firms but only if they're canny about it.

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bjr

The people who are going to lose their shirts are the ones who bought the IPO

The laws of economics don't get suspended just because you've dressed up an old idea in new cloths. Groupon is just a coupon company, how can that be worth a $10B valuation?. The answer is that it isn't, Groupon's annual sales are less than $1B, expect their valuation to drop to 1X sales or less within the year.

Groupon can't sustain it's current model because it's based on businesses offering ridiculous discounts. Nobody can stay in business by losing a little bit on each sale and then making it up on volume. Coupons have been around forever and they have their natural level which is a 10% discount not 75%. Loss leaders have been around forever also but they work by discounting a cheap item to get you into a store to buy more expensive items, think milk in a supermarket. If they lose $1 on a gallon of milk but the average customer who comes in for the cheap milk buys a weeks worth of grocery's then they make money overall. The trouble with Groupon deals is that the loss leader is usually the only thing that people buy. When Groupon discounts drop to realistic levels their days of fast growth will be over.

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Boffin

3 words would have saved a fortune...

"While stocks last"

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That works for coupons you hand out for free, not when you actually pay Groupon to buy the coupon.

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Anonymous Coward

printerpix

Google: printerpix Groupon

They sold 11,000+ coupons on Groupon alone, and seem to have had deals on several other similar sites too (livingsocial). Judging by the comments on their Facebook page (read quickly, they seem to get deleted) and complaints on blogs and forums, they're not coping too well either.

Which is annoying because I am one of the 11,000.

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Alert

Wow

Do people really pay 40 bucks for a dozen cupcakes ?

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Trollface

Nope

they pay £6.25 though.

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Wahh they gave me too much business

Is she for real? She's complaining because she was given TOO MUCH business?

Why did she create the offer if she wasn't ready for the masses to gulp it up? Surely she had a business plan that showed it was feasible to sell the cakes at that price? Sounds like she's just a big stupid wally.

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Meh

Groupon allow for order limits to be set by the client (I know this as I've dealt with them) but thier sales staff are pretty unscrupulous at the same time - and on commission ...

I have as much desire to deal with Groupon again as I do sympathy for the predicament that the bakery owner's gotten herself into!

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FAIL

Greed

I've used many of these types of sites and got some really good deals from them however I did order a canvas from a company who took months to deliver and moaned that they were suffering high demand which was causing the delay. Didn't stop them offering yet MORE vouchers while my order was still outstanding.

As with this woman they are simply being greedy, theres usually a limit on the number of vouchers sold and it should've been blindingly obvious they couldn't fulfill 8,500 orders!! The story isn't about whether groupon is good or bad, the story is to engage your brain before entering into a contract.

The exact same thing could happen if you advertise anywhere and has happened time and again. Get an offer wrong and offer more than you can afford to lose and you're in trouble, plain and simple.

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More local information

There is a new article in the local rag, the Reading Post about this.

http://www.getreading.co.uk/news/s/2103829_bakery_burnt_by_groupon_fiasco

They agreed with Groupon to restrict the offer to only 1000 vouchers, but Groupon went on and sold 9000 vouchers. I guess this answers the comments about the cake shop being stupid by accepting the offer.

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Facepalm

oops

If that's true then I'll rescind my comment against the Bakery owner made in a previous post - but surely that's not legal on Groupons part???

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Gold badge

@Stephen 2, etc., you're being pretty hard on this business owner.

Selling items at a loss is done pretty often, it's known as a "loss leader". The theory is the customers that use the coupon will buy some "full price" stuff, either on the same visit to the store or later, to make up those losses and then some.

A few risks of this approach:

* People don't buy at full price, business doesn't recoup initial losses.

* Business is short on cash, and even if they'd have a lot of repeat business, runs out of cash first. Doesn't sound like this owner went bankrupt, but losing a whole year's income is not too good.

* Regard some expense as fixed when it's not. This can turn a sale that would have made money into a fat loss. In other words, the business owner here may not have fallen into the "dot com fallacy" (lots of customers x loss on each customer = fat profits), instead she probably intended to make a small profit per sale, but figured her existing employees would just be busier (fixed cost) rather than having to hire extra temps and work late (variable cost).

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Anonymous Coward

Not Groupon again!

Yes, anon again these G people read the reg.

We have been recently looking and expanding and buying more hotels, trouble is many failing Hotels use Groupon before they go tits up!

This generates fast cash flow that can be snaffled before the administrators arrive.

Then the management company moves in and you guessed it, they use Groupon to stimulate trade of this failing business.

End result the selling agencey is then wondering why the property fails to sell, when the buyer asks for details on future bookings and finds the books are full of bookings which would bancrupt most properties again. This has happened 3 times to us, you go see the property, get your head around what needs sorting, then get the books and then "face palm", I now asked for coupon exposure up front.

Don't get me wrong here, this is not Groupon's fault they offer great deals at great profit to Groupon and reasonable cost to clients. What is wrong is managers do not know how to do basic costing (and some in failing businesses have no ethics). Don't get me started on pre-pack administration orders! - end rant!

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FAIL

Not Groupon's fault?!

From http://www.getreading.co.uk/news/s/2103829_bakery_burnt_by_groupon_fiasco:

It was agreed that 1,000 vouchers would be made available between February and July this year for 12 cupcakes for £6.50 with Need a Cake taking £2.20 and Groupon pocketing the rest.

But the offer was released days earlier than planned and began appearing in other regions across the UK and up to 9,000 people snapped it up, leaving the business snowed under.

----

In otherwords, Groupon issued NINE time as many coupons as had been agreed. How is that not Groupon's fault? The shop agreed with them 1000 coupons, so only 1000 should have been issued. NOT 9000.

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"This generates fast cash flow that can be snaffled before the administrators arrive."

You mean just like flogging umpty-something times the number of coupons you were supposed to and ignoring the consequences does?

Sounds like the wolves may already be at Groupon's door.

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Unhappy

I recently took a Groupon offer up for Sports Massage and Consultation. Speaking to the business owner about how successful it was he said that it had worked well, but that Groupon had oversold his offer. He wanted to sell around 250 and they had gone on to sell 400. Each massage and consultation takes him 1 hour. So he needs to fit in another 150 hours of work at a much lower rate than his standard fee. Plus he still needs to accommodate his regular (non-Groupon) customers.

From Groupon's point of view they don't really care. They collect £18 for each one they sold (and passed on £6). They make more money if they oversell.

Their response to him was that, "surely this was a good thing - more potential customers" (except this means 150 hours at £6 an hour), and "why not contact the 150 over subscribed customers and explain (Groupons) mixup" (i.e. he would be the source of the bad customer experience).

He'd heard of several other businesses suffering similar problems.

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And the sad part

Is your friend could have arbitrarily jacked up his prices to offset the "discount" and enormous cut that Groupon took. That's why when Groupon ravages a region the only deals remaining are these service industry offers where people have no clear idea how much something was meant to cost in the first place.

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Coupons and cupcakes

The two things wrong with the modern world.*

*Comment may not be entirely true. There's Facebook, Twitter and automatic checkouts among other things.

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Facepalm

But there was a Limit ...

According to this article - owner claims there WAS a limit - so not sure why she proceeded to fufull the massive over subscription

"It was agreed that 1,000 vouchers would be made available between February and July this year for 12 cupcakes for £6.50 with Need a Cake taking £2.20 and Groupon pocketing the rest"

http://www.getreading.co.uk/news/s/2103829_bakery_burnt_by_groupon_fiasco

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Ignoring Limits?

From reading above comments, the common thread seems to be that Groupon's customer specifies a limit on the number of vourchers, and Groupon overshoots it.

Surely that's breach of contract? I know if Groupon had cocked up and cost me £12,500 I'd be in court faster than you can say "shabby business model".

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Anonymous Coward

Groupon sales staff say alot!

Like

"Don't worry we will limit the offer to X units"

But when you read the contract there is no limit, so lesson is PLEASE READ THE AGREEMENT BEFORE SIGNING.

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