Jay Edelson and Bill Gray of Edelson McGuire, LLC, have filed a class-action lawsuit against Groupon.com, the Chicago-based coupon website that has quickly become a Chicago essential, offering discounts on many restaurants (ranging from Hannah’s Bretzel to Naha) and other services. The lawsuit, which was filed in Cook County, alleges that Groupon “systematically deceives its customers” by enticing people to purchase the gift certificate, then imposing “post-contractual terms on the consumer containing illegal expiration dates.” According to the press release issued by Edelson McGuire, “Groupon expressly advertises itself as a company that does not impose, in its own words, ‘gotchas,’ on the consumer. In clear violation of the law, Groupon imposes illegal terms or ‘gotchas,’ post-agreement, on the very consumers it prides itself on helping.”
In a copy of the complaint obtained by TOC, the plaintiff, whose name is alternately spelled Daniel Keeller and Daniel Keeler throughout the document, alleges that he purchased three Groupons for Grow Flower Shop on July 7, 2009, without being informed that the coupons carried an expiration date of July 20, 2010. The lawsuit makes a broader claim that any non-food gift certificate with an expiration date of fewer than five years is illegal according to Illinois law.
Groupon founder Andrew Mason replied to the lawsuit on the Groupon blog, in a post titled, “Groupon Organizes Class Action Against Itself.” He describes the company as having “one of the most irrationally liberal customer-satisfaction policies on the planet,” and suggests that Edelson is bringing the lawsuit either because: “1. The law firm sees an opportunity to exploit our success and make a bunch of money” or “2: We are indeed systematically deceiving our customers, but instead of taking advantage of our 100% open refund policy or telling us about their problems or sharing them in a public forum, our customers are secretly gossiping about them to each other and Edelson McGuire, kind of like Emily Johnson did against me in 9th grade (Emily if you are reading this I want my cabbage patch doll back).” The post is signed “Andrew Mason, Groupon Corporate Overlord,” and is followed by a form that Mason encourages anyone dissatisfied with Groupon to fill out. It’s nice to know they’re having fun over there.
Whether or not this lawsuit is bullshit, it raises an itchy question: Is Groupon too good to be true? Back in September, Restaurant Intelligence Agency owner Ellen Malloy wrote a blog post directed at her clients (which include restaurants like Blackbird and the Bristol) titled, “Hey, Ellen, Should we do a Groupon?” While Malloy did not give a straight “No,” her scenario of what might happen when a restaurant does a Groupon ended with: “Groupon period is over, restaurant goes back to desperately empty and has a bunch of new bad gossip on the street and online about just how rude and bad the service was.” Not exactly a rousing endorsement. Still, RIA client Naha recently offered a Groupon ($40 for $80 worth of food)—and sold 5,772 of them.
But for others, doing a Groupon is out of the question. “We would never, ever, ever do a Groupon,” says Ina Pinkney, chef-owner of Ina’s. For her, it’s about image (”People of my generation think that a restaurant is desperate if they put out a Groupon”), and it’s about the basic finances of it. “The total revenue Groupon keeps is about half,” according to Julie Mossler, Groupon PR manager, which means that if you buy a Groupon for, say $40 for $80 worth of food, the restaurant is actually getting about $20—for that same $80 worth of food. Still, according to an e-mail from Groupon founder and CEO Andrew Mason, “If Groupon didn’t work for restaurants, they wouldn’t use us (We’re not the cable company.). 98% of the businesses we feature want to be featured again, and we have a waiting list in Chicago over 100 businesses long—mostly restaurants.” Moreover, according to Mason, “Specifically at restaurants, Groupon customers spend on average 60% over the value of the Groupon.”
Ultimately, though, Pinkney feels that offering a Groupon—and using a Groupon at a restaurant—devalues her work and the hard work of her peers: She tells me a story about a friend in the industry who bought ten Groupons for his favorite restaurant. “There’s a moral obligation we have here to support each other, not abuse each other,” she says. “So go support them; don’t rip them off.”
i’m admittedly new to this whole groupon phenomenon (i was literally told it existed just a few weeks ago), but i am shocked by that profit breakdown. i dont know why, but i was actually imagining what it it could be while walking past Spring (who had a big groupon a while back) and i imagined that the groupon folks took like $1 and the restaurant or whatever took the rest. In my mind if you sell as many groupons as naha did that’s a cool $5772 in one day, which would cover staff and server space for that time. it’s astounding that off that naha thing they grossed $115,000… HOW CAN THAT BE!!!!!!!! CAPITALISM IS FUCKING CRAZY!!!!!
let alone the traffic that is sent to the website and CPMs/CPCs that they are making money off of too. What a ripoff….although I’ll continue to use them if they offer good deals I like…
BUSINESS OWNERS…be more savy with your contracts here and we might just ba able to change so you get more out of the process!
If business were getting screwed over, they wouldn’t be lining out the door to be on Groupon again. Simple as that.
I am a long time Groupon user (November 2008) and it has been nothing but fantastic for both me and the vast majority of companies it has served. Any problems I have ever had the Groupon customer service have easily taken care of, for example: I once bought a Groupon for an event, but realized I couldn’t attend because of other plans I had forgotten. Groupon immediately credited back my account no problem. The only people who ever get screwed over are those who don’t voice thier concerns to Groupon.
As far as companies go, it is probably the BEST adverstising a company could ask for. I have done many shows at a theater in Uptown. They gave a great deal a while back and sold thousands of tickets to thier shows at a huge discount. Sure they lost money up front, but they got thousands of people who didn’t know what they were about into the theater. Now when they are looking for a great night out, that theater is on thier minds as an option. So if a business keeps thier customer service up during those Groupon hits, they can definitely see huge returns in the long run.
I would add that there are Groupons out there that are bought, and never even used. The expiration dates tend not to be too far out.
I’ve definitely bought a Groupon that I let expire, and then thought, SHOOT! I should have used that thing.
Groupon is great for the consumer and has value as a highly targeted marketing tool for businesses, but no restaurant’s business plan anticipates maintained 75% discounts for the growing legions of grouponistas. Maybe the folks at groupon could scale back their usurious rasher of bacon; there is increasing chatter expressing contempt for any discount less than 25%.
Illinois law seems fairly clear on the matter: http://www.ilga.gov/legislation/publicacts/fulltext.asp?Name=095-0525
Groupon’s gift certificates can’t have an expiration date shorter than five years from issue.
I absolutely love groupon! I to have been a groupie for a long time. this is such an easy fix. It totally didn’t require a law suit. It’s soooo obvious that someone is trying to take advantage of all of the hard work Groupon has done over the past few years. I completely support them and the businesses they help. I’m friends with a few businesses who have offered groupons and they have overall been over the top happy with the extra business it has brought in. AND return business. They have a three month waiting list for businesses to feature a groupon.
This really annoys me that someone would do this to a company that’s doing so much good in the city.
I absolutely love groupon! I to have been a groupie for a long time. Fixing this problem is is such an easy fix. It totally didn’t require a law suit. It’s soooo obvious that someone is trying to take advantage of all of the hard work Groupon has done over the past few years. I completely support them and the businesses they help. I’m friends with a few businesses who have offered groupons and they have overall been over the top happy with the extra business it has brought in. AND return business. They have a three month waiting list for businesses to feature a groupon.
This really annoys me that someone would do this to a company that’s doing so much good in the city.
CAPITALISM IS FUCKING CRAZY!!!!!
I don’t think anyone forces customers to buy a groupon coupon and I don’t think restaurants are forced to offer groupon coupons. Customers and businesses understand what they are getting with groupon and both believe there is value in it. Now if allowing customers and businesses freedom to choose is crazy, yes, then I guess capitalism is crazy. Unlike socialism, which takes money from you and tells you what you must buy. Resulting in a poorer customer and inefficient low quality businesses. Kind of like Obamacare. Enjoy comrade.
Lots of good points about businesses finding utility in Groupon’s service.
One thing many retail businesses look at is the cost of getting a new customer to their store. If you know this cost for your bisiness you know whether Groupon’s right for you or not.
I also think that Groupon taking half of the profits is absurd. It basically is a leech of profits on other’s businesses. In the $80/$40 example, the restaurants need to provide with the actual service for the $20 and hopefully break even, while Groupon takes $20 in profits. Call me crazy, but that’s destroying local businesses, slowly, one by one. Let me elaborate.
From the marketing perspective, if one bought a deal over Groupon for a restaurant, it is most likely because otherwise it was considered too pricey. Will that customer return? Hardly, unless there is a permanent Groupon deal or the price remained permanently as low. Participating businesses need to be aware of the category of people visiting web sites such as Groupon. It is illogical to expect they will come back, as the same mass will be moving on, following the next deal on Groupon, presented the day after.
The effect are only temporary, one time, and businesses loose a lot - even up to 20K per deal. As a business owner, would you ever pay that money for a one time-shot advertising? It doesn’t even drive traffic to the businesses’ websites. Groupon uses someone’s else promotion to drive own traffic, and yet strips all profits, promising something that isn’t there - future customers.
There is a better way to utilize social media and collective offers that is actually profitable. Businesses can organize group offers directly at their website with this new service http://www.syncfu.com without any fees and percentages. As far as marketing exposure, they can actually let their customers do the talking instead of the Groupon website.
Smart use of group offers (not coupons) is in the development of the latent market that is on the verge of trying the service or the product, but it makes sense only if there are no intermediaries between. Participating in the group should have inconvenient drawbacks, such as waiting times or inflexibilities of use. This tradeoff makes sure there is no cannibalization between regular and group offers, but the target audience is enlarged. You wouldn’t want everyone jumping on to a group offer.
If the businesses were able to do this on their own, it’s even a better deal for the customers as they can further raise the discounts without any Groupon or alike commissions, yet they can still remain in the highly profitable area while spreading the word virally.
If a small business owner could do anything on their own that would be great but as we all know, small business owners are rather…um unsavvy when it comes to marketing period. Services like Groupon and others help bridge the gap.
Groupon is not a “gift certificate” its is a collectively purchased coupon.
I would like to point out two things:
One, if restaurant is dumb enough to offer a deal that’s going to potentially put it out of business, as in Malloy’s scenario, welll… tough tomatoes. I guess you should do some simple math before agreeing to do the Groupon.
Two, Groupon is a marketing cost. Let’s say that again, since the point seems to be lost on so many dimwits: It is a marketing cost.
It is the exact same thing as dedicating money to advertising. When a restaurant takes out a $5,000 ad schedule in a magazine, they have no way of knowing if it was worth it or not.
Groupon puts people in seats. Quantifiably. And, as they say, the average customer apparently spends 60 percent more than the value of the Groupon.
Now I am not advocating Groupon. I couldn’t care less what happens to Groupon or a bunch of restaurants for that matter.
But let’s call it what it is: A marketing cost like an advertisement.
So for all of the people scared of big, bad Groupon, here is a piece of advice: Do some easy calculations and figure out what it’s going to cost you, best and worst case scenario.
If the worst case scenario is more than you can afford, or more than you are willing to spend on marketing at the moment, don’t participate.
I think a lot of the old marketing guard is actually terrified of Groupon, which demonstrably delivers results.
Thus all the vitrol.
Groupon offers advertising with quantifiable results at a cost. It is no different than any other advertising costs.
Rallying against it as immoral or unethical or whatever is like saying WGN is immoral and unethical because their ad time is too much.
No it’s not. It’s a service with a cost associated with it.
If you can’t afford it, don’t participate.
“As all restaurant veterans already know, this is a business that is very unforgiving when it comes to achieving bottom line profits. Based on the 2004 Restaurant Industry Operations Report published by Deloitte & Touche LLP, average pre-tax profit margins range from 4-7% (4% for Full Service and 7% for Limited Service restaurants). Not only is there little room for financial management missteps, the problem is compounded by the lack of business experience and basic financial skills that most startup restaurateurs bring to the table.” from John Nessel http://bit.ly/u6aCX
If Naha sold 5772 certificates at a $40 discount and shared 1/2 the fees collected $20 they have made an advertising commitment of $346,320. The state attorney general ought to look to require the restaurant or Groupon to place this amount in a trust account. This is required of most health clubs who presell gym memberships before opening. Neither party should be selling services they are financially incapable of delivering now or in the future.