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August 17th, 2011 12:01 am COREY PEIN | Cover Story

Cheat Local!

Portland helped make Groupon a giant. Here’s how local businesses get crushed.

But the experience of another pedicab company shows one potential downside of these daily deals: wasted energy.

Portland Rose Pedals Pedicab owner Casey Martell was disappointed with the performance of his recent Google Offer for his brewery tour. 

“They led me to believe I was going to sell, like, hundreds of these things. But they only ran it for a day. I only sold 26 out of the 700,” Martell says. “It’s totally not worth our time.” 

There were consequences beyond Martell’s bottom line. “I brought on a few more [drivers] because of this, and they’re still waiting to get some work, because there isn’t any.”

Pistils Nursery on North Mississippi Avenue is a popular spot for people seeking to buy seeds, plants and chicken feed. Its Groupon deal last year offered customers a 60 percent discount. 

The deal was limited to one voucher per customer. But it had a loophole: Customers could buy unlimited vouchers if they said they were gifts.

“It was effing ridiculous,” says owner Megan Twilegar. “I think we barely broke even on the money side. We were slammed. We were wiped out.”

Some lose more than time. One Portland business was among the first to go public with its horror story about losing big money on its Groupon deal.

Jessie Burke, who is the same age as Groupon CEO Andrew Mason, opened Posies Bakery & Cafe in North Portland’s Kenton neighborhood at around the same time Mason launched Groupon in 2009.

LESSON LEARNED: Posies Bakery & Cafe owner Jessie Burke was one of the first businesspeople in the country to go public with a Groupon horror story.
Credits: Darryl James

The cafe is pitched at young mothers who aren’t keen on taking the tots to Stumptown. (“Everyone loves you when you’re pregnant, but they hate you when you have kids,” Burke says.) 

Burke, who has a graduate degree in public education from Portland State University, got a $107,000 start-up loan from the Portland Development Commission, where she once worked as an intern. Which means that local taxpayers are invested in the success of Posies.

Burke approached Groupon after hearing about the company from a friend. According to Burke, Groupon divisional sales manager John Waller told her that Groupon would keep 100 percent of the sales proceeds because Posies’ average sales were under $10. Burke says she declined.

“I was like, ‘Who could afford that?’” Burke says. “They said, ‘But listen, you’ll never have to advertise again.’”

Groupon officials later denied that this was the offer they made Burke. BusinessInsider.com, which wrote about Posies last fall, quoted Groupon CEO Mason as saying this aspect of Burke’s account was “100% false.” 

But an email Burke provided to WW seems to contradict that statement. It shows the company’s salesman, Waller, coming back to Burke and offering her company a cut of the money. 

“I gave this some more thought,” Waller writes. “Understanding that your business [is] newer, I decided to split the revenue with you. So, you’ll be getting $3 of the $6 we charge the customers. Also, we incur a standard credit card processing fee of 2.5%.... This should make this campaign even better for your business!”

The deal offered $13 worth of food and beverages at Posies for just $6. 

Within a day, 890 people bought vouchers. 

“They came out of nowhere,” Burke says. “And because they hold a coupon in their hand, they feel like they’re entitled to something. It literally felt like I was getting beat up.”

Burke says she lost $10,000 on the deal. And it got worse. Groupon customers—after jamming her shop—then went online and trashed her young business.

At the suggestion of a customer, Burke wrote a blog post calling Groupon the single worst business decision she’d ever made. At the time, Groupon was, as Burke put it, “the darling of the social media world,” so the sour note got a lot of attention.

Groupon CEO Mason left a conciliatory comment on Burke’s blog, and emailed her with both an apology and suggestion that her cafe was an outlier. 

“We’ve run deals for hundreds of businesses similar to yours and they’ve had great experiences, so I’m eager to understand what it is about your business that made Groupon such a bust,” Mason wrote.

Burke was left cold. 

“It’s hard enough to go into business and take a huge risk and put your life on the line,” Burke says. “Groupon is going to be like locusts. They’re going to go through these businesses, they’re going to close all of these businesses, and they’re going to make billions of dollars and sell the company and run.”

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