Groupon Minneapolis Deals are Pretty Solid

I’m sure a lot of you have already tried Groupon, based on the emails I receive from friends passing along offers that they find particularly interesting.

For those of you not already familiar with the service, it’s a new spin on couponing where the service posts one offer a day (on their website and via email) for a local business. But rather than being a coupon offer, it’s a heavily discounted gift card, so you need to pay up to earn the offer.

Examples of this have been things like $50 restaurant gift cards on sale for $20-$25. Spas, skydiving, and cosmetic dental services.

On the plus side, the offers have been surprisingly local. I was hesitant to sign up for this because I figured it would be overrun with national chains that I tend not to go to, deal or not. However, that has proven to be not the case.

The metrics of Groupon are intriguing. For example, Tiger Sushi on Lyndale at the Midtown Greenway ran an offer to purchase $45 gift cards for $20. This was one of the most popular recent deals.

Tiger Sushi Groupon Offer

I assume this is because it was for more than 50% off and in a popular part of town where Groupon likely has solid traction.

As the above image shows, they sold 4,993 of these, so, at $20 each, nearly $100,000 was spent on that day’s offer at Groupon. As I understand the metrics, about half of that goes to the vendor, so Tiger Sushi received around $50,000 and Groupon brought in nearly $50,000.

Money in the bank is certainly a good thing. But what happens if all 4,993 of those Groupon purchasers shows up to redeem their gift cards? The ~$50,000 Tiger Sushi earned comes with the promise of being willing to fulfill $224,685 worth of tabs. I’m not intimately familiar with restaurant margins, but that seems like a pretty large exposure to me.

However, the numbers must make sense, since Groupon is kicking butt all over the country with this model. If the offers weren’t working for businesses, word would get around fast and the wind would be gone from Groupon’s sails.

To make this work, the following likely happens:

1. Acquiring new customers: Take a loss on the first visit, but earn a new customer in the process. This virtually guarantees that you’ll get new customers in the door.

2. Over-spenders. A tab at a sushi place will likely run well beyond $45. If it doesn’t, you probably will know why by the next morning.

3. Spoilage. A substantial number of Groupon purchasers probably never get around to using the gift cards they’re purchased. This is obviously the highest margin side of this equation for the vendor.

What else do you think is in play here?

Could a Truly Local Version Work?

Assuming the numbers make sense, it would be interesting to see if this would work locally with local control. For example, what if the Lake Street Council pushed out daily or weekly offers on behalf of local businesses? Primary subscribers to offers like that would likely be people nearby, but it may be the thing that puts them over the top to invite friends from faraway places like St Paul or Linden Hills to see what Lake Street is all about these days.

Hmm, along the Lake Street brainstorming flow, how about local businesses offering deals to groups that can prove they brought people into the neighborhood? If you’re from zip codes 55406, 55407, or 55408 and can prove that you brought at least two people from elsewhere to the venue, you’ll eligible for something rad. Try it and see.

8 thoughts on “Groupon Minneapolis Deals are Pretty Solid”

  1. I’ve also used Living Social for deals locally, just bought $50 of delivered groceries from Coburns for $25. But I’ll never use the service after it so it’s not really a good deal for them.

    Why would Groupon get 50%, just for selling a piece of paper? That seems really high.

    Restaurants probably also like that they get all that money upfront, but only see those gift certificates being used a few times a night.

  2. Groupon have a one per customer non-transferable policy at all, or one that is easily gamed?

    That number of coupon sales seems inexplicable for a smallish local restaurant.

    Bet I could arbitrage this: Buy 500 of these and mark them up $10 and sell of on Craig or elsewhere online.

    Does not hurt the end user or the restaurant, but if I were a merchant I’d be pissed if someone stood in the middle of this trade like that.

  3. Alex, some deals have quantity limits. For example, today’s offer has a max purchase of 25 per person. A person with more than one email address and credit card could likely figure out a way to go big.

    While it would probably work, I wouldn’t recommend attempting to hawk them in restaurant mens rooms.

  4. @Jeremy, I think there is a subtle difference between the coupon and groupon scene. With coupons, restaurants get people in the door for a discount. With groupons, people pay the restaurant whether they show up or not. With a $1.35 billion valuation for Groupon, a lot of people must be buying (but not redeeming) groupons in order to make the numbers work.

    Over time, I imagine Groupon’s service could mature into something where they make different types of offers to different types of users. For example, they’re now collecting some demographic info that may help them better target offers based on things like gender. Perhaps they could also push offers to people who are least likely to have been to a particular establishment before?

  5. An acquaintance of mine just started Dealstork.com which is focused sole-y on the Twin Cities. He’s also the owner of another local food media company, so it will be interesting to see if and how the company takes off based on his previous food connections. I haven’t splurged yet (I must have missed the Om day, because it’s one I would have actually purchased).

  6. Well, one thing is, my guess is that the Tiger Sushi promo did so well because they’ve been getting a lot of good press lately.
    But mostly, I guess places that participate are using the foot in the door principle. It’s hard to get people to try new things, but giving them a cheaper gift certificate makes them more likely to come in.
    I would love to get coupon offers for local businesses, because I want to support local places, but I don’t want to buy gift cards. I think a completely local Groupon, or other coupon/deals site, would work, because right now, people are really into the idea of staying local, which also has a better effect on the local economy.

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