Can Groupon Guilt Save My Local Sushi Joint?

I may have just helped put my little local sushi joint out of business. A place we had eaten at before and liked in my town sent out a killer Groupon deal: $50 of tasty fish for only $25. The economist in me knew the proper path. Maximize the heck out of that puppy and buy two for me (the maximum), two for my wife (as a gift) and two for each of my two children. That would bring my family Groupon savings to a cool $200 and still keep us within the legal limits of the deal.

It would also completely hose the little sushi restaurant we were fond of and do exactly the opposite of what Groupon seeks to do – provide an introduction to new customers. We’d eat there eight times in a year, which is probably more than we would otherwise – and they’d lose money on us every time.

The way Groupon is supposed to work is this: offer a great deal, get new customers in the door. But when that “new” customer keeps showing up with a massive discount in hand, the sushi joint naturally loses cashola and the idea of group buying loses cachet. Who cares about the poor merchant, the guy who failed to properly grasp the caveat emptor part of the Groupon sales pitch?

I have to choose between saving money for my family and keeping the local merchant alive.

In fact, I do. I know the people who run that restaurant. They aren’t friends but we say hello when my family goes in there. I know their name and they greet my children by name. We make small talk. In short, I am the last person they need to give a Groupon deal to. And for my part, in an economic climate of ongoing stress for most small businesses, I am not sure that I want to be the one who pushes a friendly purveyor tasty tuna out of my little slice of Mayberry. I realize, too, that this little dilemma will likely become a recurrent theme for me as group buying continues to penetrate the mainstream couponing and local advertising and marketing segment. And I have to choose between saving money for my family and keeping the local merchant alive.

There are myriad ways to take advantage of these types of offers at the expense of the merchant. Considering that entire sites have grown up and thrived around the idea of publicizing coupons or special offers online, it’s only logical that gaming Groupon and its kin will become great sport. This isn’t like the days of simple couponing, where the discounts are much less significant: Five bucks here, five bucks there – a problem but no big deal. But 50% combined with a mad rush of interest? Big trouble indeed, as many small businesses have written in various places online.

And that is the sub-surface meme that many Groupon haters have repeated ad nauseum. Groupon is a losing proposition for merchants. Groupon deals don’t work. I have had a few merchants tell me that’s so — and a few also tell me they love it. For its part, Groupon claims that merchants who use it overwhelmingly have great experiences and the majority sign up for repeat engagements.  In the end, Groupon and its ilk cannot and should not be blamed for pursuing a business model and living by the tenets of capitalism.

That said, capitalism can have unintended consequences. Disruptive business models by definition disrupt. So as familiarity with group buying grows and saturation nears, situations like mine will likely become far more common and far harder for group-buying fans to avoid. Already there are signs the merchants are reacting by putting more boundaries on their group buying offerings. Some media wags are calling it a full-on “Groupon backlash”. Whatever the case, I am running more and not less opportunities to use group deals for massive, repeated discounts at local merchants I already know pretty well.

Thus, it comes down to guilt. My guilt and your guilt. Are you willing to push your group offer to the max? Do you like your restaurateur enough to buy modestly? Or, even more responsibly, not to buy at all (this seems impossible). And will guilt save Groupon? Will weak social ties and the sense of responsibility they engender be sufficient to contain maximizing economic behavior? Stay tuned. It’s going to be an interesting year.

Alex’s Salkever’s Personal Fight column appears every Friday.

  1. Anonymous
    April 15, 2011

    There is a bit of an assumption doing the rounds that the average small business owner is a bit thick and cannot do simple addition on the back of an envelope. A related assumption is that the market is not good at transmitting price signals.

    What is going to happen is the following

    – Merchants are going to negotiate with Groupon and Groupon’s 50% of the revenue is going to decrease.

    – Discounts are going to move to more manageable levels as each city gains two or three significant Groupon competitors.

    New businesses will continue to offer Mega Deals to get the word out. They will put the marketing budget into Groupons rather than searchlights.

    Businesses in cheap rent locations will continue to put the money saved on rent into Groupons or similar.

    The market will work it out.

    And the Market will put an appropriate valuation on Groupon. They will wish they took the Google Shilling in two years time.


  2. Sheldon
    April 29, 2011

    To build on what sjkhayes said about the assumption about small business owners being a bit thick, I also find that a curiously off target assumption. It’s even more off target when you consider that the type of business that often comes up in the “Groupon is bad for your small business” story is often a restaurant.

    Running a restaurant is an extreme sport of resource management. Besides all of the usual acumen that you need to run all aspects of a business, you deal with the unfortunate fact that your goods have a very short shelf life. Raise your hand if you’re hungry for some week old fish!

    If there’s any kind of small business that would understand the dangers of buying into a bad deal it’d be a restaurant, but if you’re hurting enough for business maybe you throw caution to the wind. It makes me think that a lot of deal sites oversold the group buying benefits to the restaurant without properly preparing them for the downside.

    I’ve worked on and have tried to start local merchant coupon services as early as 2005 and I’ve found that it’s not an easy task to convince a small business owner to give out discounts. One particularly blunt restaurant owner told me that it was insulting for me to ask him to offer a coupon because his food was not a commodity to be bid downward. I’ve found this kind of mindset amongst a lot of small merchants and I can only assume that it’s because their life is their business and they identify so much with it that many of them are reluctant to slap a discount label on their goods or services.

    The Groupon style deal for restaurants with the accompanying Groupon style diner is nothing new. has been doing these $15 for $30 of food vouchers for years. Over five years ago, the owner of one of our local sushi restaurants complained to me that his promotion was killing him. The people that the deal brought in were more aggressive than his usual diners and since this was before the time of smart phones, they brought calculators to dinner. He said he could tell they were going to hit him with a voucher just by the calculator because so many of them took special care to spend as little over their voucher amount as possible.

    They also rarely came back as repeat customers. Deja Vu.

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