Groupon, A Cool Tool for Small Grocers

April 21, 2010

Is it a thrill to wake up each morning eager to see a new great deal from a local business?

Is it a thrill to wake up each morning eager to see a new great deal from a local business? Groupon thinks so. That’s the hook it hopes will have millions of consumers in a growing number of American cities sign up and provide the critical mass that prompts stores, restaurants, salons, fitness centers and other establishments to dive in with offers.

A counter on the website yesterday indicated 4.1 million Groupons (group-driven coupons) bought and more than $158 million saved by consumers in 48 cities since the site’s inception in 2008.  Deep discounts can happen if enough people buy a Groupon to drive ample traffic and exposure for the effort – otherwise the offer disappears.

Two recent offers in New York included: Spend $25 for $50 value of grocery delivery from FreshDirect (3,907 Groupons bought on December 31, 2009). Spend $15 for $35 worth of gourmet groceries at Amish Market Tribeca (2,791 Groupons bought September 22, 2009).

Clearly, low-margin supermarket operators need to be careful about how they offer steep discounts, and how they measure success on a tactic such as Groupon. Yet its ability to build traffic seems powerful.  In late-March 2010, August Grocery, a tiny independent, used a Groupon promotion to bring about 300 people to its 1,700-square-foot store in Wicker Park, IL, reported Supermarket News. For $12, Groupon buyers got $25 in fresh groceries and culinary counsel; some 2,891 people bought the Groupon, and 300 cashed it in during the first week of the offer. 

“I can’t imagine any way I could get my name in front of 3,000 people in 14 hours and have the costs [of advertising] deferred over a year,” George Djurovic, the owner of August Grocery, told SN. August will pay Groupon a $6 fee for every Groupon redeemed within the year.

In effect then, August will net $6 in exchange for every $25 in products/services he gives to Groupon buyers. How many of those people will become regular or occasional shoppers at August? How long will it take to achieve a targeted return on his investment? At The Lempert Report, we think these are interesting questions that retailers will have to begin to weigh on a larger scale.  We also think offers will have to become more sophisticated and unique to a store’s capabilities in order to avoid brutal markdown wars.  
For now, and maybe for a long time to come, the use of Groupon and other new-media tools are an effective tool for small retailers like August to impact a market—because based on size and purchasing clout, they might not otherwise be able to compete price-wise with the major chains.