Groupon is doomed

Take it to the bank, in it's current form, the coupon-via-email business is doomed to go down as a fad.

Math, as usual, supplies us with the answers.

A restaurant takes a $100 meal (that costs them $50) and marks it down to $50 (Groupon requires at least a 50% markdown), they hand Groupon 30-50% of that. Let's assume 30% for my example.

The restaurant, then, LOSES $15 per coupon that is redeemed, right? They are providing a $50 meal but only getting $35.

1000 customers buy-in and 80% actually use the coupon (20% get lazy and let it expire)

800 customers at $15 loss per is $12,000. The profit on 200 customers not using the coupon is $35X200 or $7000.

In short...restaurant loses $5000.

Now...800 people come in and enjoy a meal for $50...how many are likely to return for the same meal which would now cost them $100?

Using our trusty math, we find that the restaurant needs 50 of those customers to return in order to make a $5000 profit.

So...1000 coupons sold...800 redeemed...50 return visits...and the restaurant has netted $0.0

Here's the thing...

1) People don't like to see massive price increases. They just had a meal for $50 and now you are telling them it's $100.

2) There are more deals on the horizon. Why should I, as a customer, go back to your place for $100 when I can try a new one for $50? I can literally eat out twice as often under Groupon than under your regular prices.

3) I have used the most optimistic numbers possible. I've chosen the lowest Groupon commission (30%) and the highest non redemption rate (20%). A 50% commission and 100% redemption rate leaves you with a staggering $25,000 loss on 1000 coupons. You would need 500 return visits just to break even in that case.

4) I have also ignored any increased staffing costs. i.e if you were busy, you wouldn't need Groupon so does having 800 new bookings mean you need to bring on extra short term staff?

So...

- Groupon is likely to run out of businesses stupid enough to offer huge deals so they can lose money.

- Consumers are likely to a) get sick of endless emails b) feel Groupon remorse where you buy stuff you don't need or want c) not want to deal with coupons with expiration dates.


I just don't see how this ends well. It almost looks like a pyramid scheme. Groupon needs more and more businesses offering crazier and crazier discounts in order to operate and I just don't see that happening forever.