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Comment by damian2000 | Hacker News Reader

damian2000

I agree that Groupon's practices here may be beneath contempt, but noone forced this business owner to sell his products via Groupon. A tiny bit of research on the net will tell you what to expect.

Many business owners view these voucher offers as solely a publicity exercise and fully expect to make a loss, with the hope of gaining new customers in the long term (whether it actually works out like that is debatable).

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A tiny bit of research on the net will tell you what to expect

And he's contributing to that body of knowledge on the net so others who research the subject in the future know what to expect.

Someone has to make their complaints in public in order that "a tiny bit of research on the net will tell you what to expect".

I couldn't tell from this site if the owner is under the impression that he was never informed it would take that long to get the money, or if he signed the contract knowing full well what the reimbursement policy was and just thinks it's unfair now that he's had to live it.

Also, I'm a little confused about the economics involved. Most of the overhead in this kind of restaurant is in the facility and labor. The raw ingredients of even the most gourmet waffle should pale in comparison. And your facility and labor costs should hold about steady unless you're doing an insane amount of additional business from Groupon. And his base price was $8. $8 for a waffle. I'm no cook, but it seems like there should have been a very healthy profit margin in there.

I don't own a restaurant or know much about the economics of keeping one open, but this seems like an odd situation to me.

Closing business for a day: labor cost = 0. That means less burn. He must be bleeding for cash given the timing (3 months). At this point, business owner has to amortize the labor cost across fewer waffles.

Agree 100%. Also, based on his menu, he made another critical error in using promotions like Groupon: no room to upsell. He's charging $8 for waffles (which may not even be that high in his DC neighborhood), but undercharging for coffee and doesn't appear to have any further upsells.

As an example, mimosas go great with waffles and can run up a tab quite quickly. Alcohol is usually excluded from such promotions, so this is an opportunity to reclaim immediate margin.

Edit: Yes, getting a liquor license costs time and money. So does running a successful restaurant. I was pointing out that running such a promotion requires preparation. He could also make his margin selling waffle toppings, sausage, and grits. Any way the merchant can get the average ticket well above the Groupon's cap is a way to stay in the black; liquor is just one way to do that. If a restauranteur isn't ready for scale, Groupon is not going to work.

And a medium drip at Starbucks is over $2 everywhere in Atlanta (where I live). I'd be surprised if prices are lower in higher-priced D.C.

That would require a liquor license, which can be quite a difficult and expensive proposition in its own right.

Selling mimosas requires a liquor license, which isn't easy to get. It's unlikely that a hole-in-the wall waffle joint would have one.

Since when is $2 undercharging for a coffee? Even starbuck's doesn't charge that much.

The guy should have made a mistake, but arguably the Groupon model needs to work for little businesses like this if they're going to take over the world.

Maybe, offer a basic cup of joe for $1 and a fancy organic, gourmet, free-trade coffee for $3.50 in a nice coffee press. It really depends on the part of town and the typical type of clients.

$8 for two. $4. Groupon takes half. $2. Paid over three months. 66c. More of the money will trickle in later, but 66c (and still a month later) is not a very healthy profit margin.

I think you're significantly underestimating the price of the ingredients. There are some good sites how to start a restaurant, and what margins to expect, how to calculate cost, etc.

Any reads you suggest? I am fascinated by the idea of opening a restaurant.

I am with you, but I also know that businesses buy things that they don't need all the time. Things like full page ads in "The Other Yellow Pages you never heard of" and things like that. Perhaps he bought into the dream and didn't consider the consequences, perhaps they lied, perhaps perhaps perhaps. Sad though. Hopefully his story helps prevent another problem.

It really looks like they sold dreams to the poor business and the business was too busy to really understand the terms and consequences of the deal. May be Groupon took advantage of the gullible business or maybe they were they were too dreamy eyed but ultimately the party that suffered was the small business and I think they should have done the due diligence of validating what the modus operandi was for Groupon.

Full page ads have a limited loss potential though, what you spend on the ad. And you pay up front (I assume), so you probably aren't making an obligation you can't keep. Your groupon "ad" loses more and more money the more successful it is.

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