My problem with Groupon and Living Social

This applies to restaurants specifically. Most of the discounts are for 50% off and Groupon takes 50% of the dollars paid on the deal. This means that most businesses receive only 25% of what a normal customer would have paid. Are there many (if any) businesses that can still make a profit at a 75% discount? Let’s use today’s deal at The Finnish Bistro as an example.

So far 1,876 Groupons have been purchased. The restaurant has committed a value of $31,599 on these individuals to earn $7,725 exactly 90 days from today.There’s no way to guarantee that these individuals aren’t already customers so they’ve probably shaved a little bit off of their typical bottom line. The waitstaff will be earning smaller tips from these individuals and will likely be considerably busier. And I’d wager to bet that the restaurant will spend more on just the food than they’ll take in.

At the same time, Groupon just earned $7,725 (plus 90 days interest on the restaurant’s cut). All they had to do was have a sales person contact the restaurant and get the promotion up and running. Now they’re blowing that money on Super Bowl ads. Seems fair right?

PS Their sales people are brash and insulting. In my experience, they’ve had no regard for the business problems they are supposedly trying to address.