October 28, 2011
Bob Krummert
Restaurant operators won’t be part of the action when the stock of daily deal giant Groupon starts trading on Friday, Nov. 4. But they might want to take a look at the company’s new Groupon Now! service, which costs less and gives operators more control than traditional Groupon deals.
Groupon was thought to be worth $20 billion earlier this year. Now expectations are that this lofty valuation will have been cut in half by the time the company’s stock goes public. The reason: Potential investors looked at the several hundred companies that have gone into the daily deal business Groupon once dominated and concluded that barriers to entry are too low. More than a few moneymen think Groupon and its once-explosive growth rate is about to hit the wall.
Groupon sees the problem, too—to the point where it has stopped defining itself as a daily deal company. That was Groupon 1.0, company executives now tell potential investors. It’s being replaced with a new business model, Groupon 2.0. The company is morphing into a “local e-commerce marketplace,” with Groupon Now! being the centerpiece of the operation.
Groupon Now! combines three key attributes:
• On-demand, highly perishable deals.
• Location-based solutions for consumers.
• Inventory management opportunity for merchants.
(You can see Groupon’s investor road show presentation by going to http://www.retailroadshow.com/roadshows.asp and clicking on the Groupon link.)
The net result: Groupon Now! should provide real barriers to entry, the company says. Fine, but does it help restaurant operators? Here’s how a company spokesperson responds to that question:
“Groupon recently launched a new offering to attract customers when restaurant owners need them the most—Groupon Now!
“Recently launched in 25 markets, Groupon Now! allows merchants to attract customers during slower traffic periods of the day or year. Most importantly, merchants have complete control of the deal and are able to turn it on and off in real-time based on traffic. Consumers can view and purchase the location-based deals on their mobile devices, enabling them to indulge in a nice meal with an even nicer price-tag, while supporting local hotspots and filling empty seats.”
The big news for operators comes on the cost front. Groupon takes only 15-20 percent of the revenue generated by Groupon Now! deals. Traditional Groupon deals cost the operator 50 percent of revenue; since most deals offers are for half price, this meant that the operator was only getting $.25 on the dollar. The new pricing scheme gives operators some breathing room on Groupon Now! deals.
Note that unlike traditional Groupon, Groupon Now! is not an email-based system. Customers have to actively search for an operator’s deal on their mobile devices, because Groupon won’t be pushing offers to their inbox. This setup is what enables operators to turn a deal on or off at will.
Groupon Now! seems like it could become an important marketing tool for restaurants, most of which would like to pay less and have more control over deals. However, Groupon customers have been very slow to embrace the new service. It was introduced in Chicago back in May and is now available in 25 cities. It only brought in $1 million in the month of September, less than one percent of the company’s overall revenue.
We don’t know how the big questions that surround Groupon—how much it’s worth, how sustainable its business is, whether or not Groupon Now! will catch on—will be answered. But we can see how Groupon Now! could work for those restaurants that learn how to leverage the daily deal infrastructure without having to give away the store.
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