Business

Groupon Deal Goes Horribly, Horribly Wrong for Cake Maker

Groupon Deal Goes Wrong for Cake Maker | Rachel Brown | Need a Cake Bakery | Reading, England

Need a Cake owner Rachel Brown (Source: BBC)

There has been a lot of buzz in the business world lately about the “deal-of-the-day” website Groupon. Even though their stocks have slumped since their initial public offering, they still manage to generate excitement. In fact, several analysts believe they are still a force to be reckoned with.

Unfortunately for one British cake maker, she discovered the hard way that Groupon is indeed a popular promotional tool.

Rachel Brown is the owner of Need a Cake bakery in Reading, England. She decided that she would use the “deal-of-the-day” website to help boost her sales. By deeply discounting products by 75 percent, she figured that the Groupon promotion would add to her profit margins.

Ordinarily, 12 cakes at her shop cost about $40. However, the Groupon deal that she put together reduced that price to just $10.

As a result, more than 8,500 people signed up for the deal (because, well, it was a really good deal). Brown was then forced to hire extra workers and ended up losing nearly $3 on each batch, according to the BBC.

Groupon Deal Goes Wrong for Cake Maker | Rachel Brown | Need a Cake Bakery | Reading, England

BNPS

Brown, who has run her business for 25 years, told the Telegraph she had no choice but to make good on the Groupon offer.

“My poor staff were having to slog away at all hours — one of them even came in at 3 a.m. because she couldn’t sleep for worry,” she told the newspaper. “We are still working to make up the lost money and will not be doing this again.”

Groupon Deal Goes Wrong for Cake Maker | Rachel Brown | Need a Cake Bakery | Reading, England

“We take pride in making cakes of exceptional quality but I had to bring in agency staff on top of my usual staff, who had nowhere near the same skills. I was very worried about standards dropping and hated the thought of letting anybody down,” she said.

By the end of the promotion, she wound up posting a loss of about $20,000.

“Without doubt, it was my worst ever business decision,” Brown told the BBC. “We had thousands of orders pouring in that really we hadn’t expected to have. A much larger company would have difficulty coping.”

Groupon Deal Goes Wrong for Cake Maker | Rachel Brown | Need a Cake Bakery | Reading, England

Heather Dickinson, international communications director for Groupon, told the BBC there was no limit to the number of vouchers that could be sold.

“We approach each business with a tailored, individual approach based on the prior history of similar deals,” she said.

Groupon Deal Goes Wrong for Cake Maker | Rachel Brown | Need a Cake Bakery | Reading, England

That being said, somewhere between posting the $20,000 loss and setting up the 75 percent discount, someone clearly miscalculated the shop’s ability.

Comments (96)

1 2 3
  • judostatic
    Posted on November 23, 2011 at 7:35am

    haha groupons is a sham should have never went public or even tried to its a rip off

    Report Post » judostatic  
    • GMP
      Posted on November 23, 2011 at 8:37am

      Haha I speak grammer real good and use punctuation super great

      Report Post » GMP  
    • killertofu
      Posted on November 23, 2011 at 8:46am

      lol @ gmp!

      Report Post » killertofu  
    • Fubert Barr
      Posted on November 23, 2011 at 9:32am

      you mean grammar?

      Report Post »  
    • Melbee
      Posted on November 23, 2011 at 1:57pm

      It’s not a scam. As terrible as it is for her, she should have done the numbers! It’s her fault, NOT Groupons. Typical of people to blame others for their woos.

      Report Post » Melbee  
    • TalonsPoint
      Posted on November 23, 2011 at 2:58pm

      Well said Melbee. It was a rather simple math problem to assure profit and secondarily very poor test marketing to offer such deep discounts. 75% off and she has to cover materials, labor, shipping, and sundry overhead?

      Report Post » TalonsPoint  
    • williamsteaparty
      Posted on November 23, 2011 at 6:15pm

      Good call Melbee!!!!!!! It is her own fault for not doing her due diligence and running the numbers. There is no reason to blame Groupon for her thinking that she could make a profit with a 75% discount on a food service item. I am a small busniess owner myself and am familiar with groupon I don’t use it myself, but I have met many business owners who have made the same mistake.

      Report Post »  
    • Two Cents
      Posted on November 23, 2011 at 10:40pm

      Tut tut, @GMP, maybe he‘s one of The Blaze’s copy editors.

      Report Post »  
  • gmoneytx
    Posted on November 23, 2011 at 6:51am

    I did some investigating on this lady, she was on the board for Solyndra.

    Report Post » gmoneytx  
  • TRUTHandFREEDOM
    Posted on November 23, 2011 at 4:11am

    A great opportunity for sarcasm.

    She used the Solyndra model – manufacturing cost exceeds sale price. Why didn’t she just make the cakes green and ask Obama for a loan, then redirect some of it to O for 2012, give herself a mega bonus and declare bankruptcy?

    Report Post »  
    • NSDQ
      Posted on November 23, 2011 at 10:30am

      With alittle green food coloring, POOF green jobs, guaranteed money from Obozo crowd

      Report Post » NSDQ  
  • Salamander
    Posted on November 23, 2011 at 1:00am

    How does the old maxim go? When your product is priced below your marginal cost of production, you lose money on every sale–but you’ll make it up on volume? Sounds like our Congressional geniuses–and their ‘New Math’!

    Report Post »  
    • Balrog28
      Posted on November 23, 2011 at 11:34am

      Reminds me of the SNL Commercial for a Bank that Makes Change. Some people ask – how do you make any profit with this business – answer – Volume!

      When you only do one thing – you do it better than all the competition. We make change.

      Report Post » Balrog28  
  • hogtrashhd
    Posted on November 22, 2011 at 11:56pm

    i was and am aware that groupon is a bad deal.. stay away from this stuff.. it’s all bogus..

    Report Post »  
  • denisp52
    Posted on November 22, 2011 at 11:05pm

    She could of received at least $250 million in grant money from Odumbo and the boys if she would of used Green frosting and promoted it as a “green” job creator. It could of been one of this administration’s best successes in job creation. It’s the perfect government story lose money on every sale but make it up in volume!

    Report Post »  
  • The-Monk
    Posted on November 22, 2011 at 11:03pm

    I clean virus and malware off of computers that use Groupon. Groupon, like most FREE software that offers to save you money or make money in loaded with ID stealing malware. She lost $20K and some of the users had their ID stolen. What a DEAL!!! Don’t use this type of software AND do your online banking on the SAME computer.

    Report Post » The-Monk  
    • kentuckypatriot
      Posted on November 23, 2011 at 5:27am

      Hey Monk,
      What about other coupon sites, like internet coupons for groceries? Do those tool bars contain malware? Thanks

      Report Post » kentuckypatriot  
  • DadInFishers
    Posted on November 22, 2011 at 10:57pm

    Two anecdotes about Groupon. I own a small business and have used Groupon to great success, but I did so very cautiously making sure I understood the potential costs. Note to anyone who is not familiar with the inner workings of Groupon: Every sale is at 75% discount to the business owner, because Groupon requires a 50% discount on the deal and they take 50% of the sale leaving the owner with 25% on the [normal] gross. My second anecdote is a local business near me ran a Groupon earlier this year with similar experience as this lady. They could not honor the deal and had to offer refunds, because they claim it would have put them out of business.

    Moral of the story: Groupon can work. Just be careful.

    Report Post »  
    • SEPARATENOW
      Posted on November 23, 2011 at 7:18am

      As an ad agency owner for more than twenty years I have only had one piece of advice for my clients about Groupon. NO. Unless your gross profit margin is 80% or higher. NO. In addition, I had to threaten their Chicago sales office with a harassment suit to make them stop calling me and my clients.

      I‘ve researched Groupon’s results anecdotally with dozens of local Indiana businesses. The return of trial customers post Groupon was never worth their investment of the 75% discount.

      Groupon requires more than care, it requires the backbone to say NO and keep saying it.

      Report Post » SEPARATENOW  
    • jhrusky
      Posted on November 23, 2011 at 9:35am

      Groupon will definitely bring you in more business, but that business will typically be a one-time shot. There is no loyalty in most people any longer and no matter how good your product or service is, they will jump at the next opportunity that saves them even a penny.

      Stay away from Groupon.

      Report Post » jhrusky  
  • Thevoice
    Posted on November 22, 2011 at 10:28pm

    What …That’s the American business model today …Bring in a bunch of outside workers (Mexicans) drop the quality to crap status and be able to sale the Groupon Walmart or McDonald’s of today… .(go back to last week egg story) .Or if you have to make a product outsource it to the Chinese and sit back and tell the world your a business genius The only problem this woman has is she should have sold them a $2.00 cake..and been delighted she sold 8000 of them ..and kept the ad running. .

    Report Post » Thevoice  
  • your sensei
    Posted on November 22, 2011 at 10:26pm

    Ah, the vaunted power of small business in action. Job creators! Entrepreneurs! The backbone of this great economy! The free market in action Well done! Well done! Carry on, Christian soldiers and soldierettes!

    your sensei  
    • joe1234
      Posted on November 22, 2011 at 11:30pm

      damn you’re ugly inside and out…

      Report Post » joe1234  
    • Jase
      Posted on November 22, 2011 at 11:39pm

      You should take advantage of one Groupon’s beauty salon deals.

      Report Post » Jase  
    • bombshelterbob
      Posted on November 22, 2011 at 11:41pm

      Now, now Sensei. Sounds like somebody’s mommy put too much starch in the underware again!

      Report Post » bombshelterbob  
    • JakeEllis
      Posted on November 23, 2011 at 8:03am

      It is funny how similar communist God hating liberals look like one another. Inbreeding perhaps. Or, birds of a feather. You are one butt ugly human, and your hatred of our lord and country is typical of the ignorant, ugly communist democrats.

      Report Post » JakeEllis  
    • your sensei
      Posted on November 23, 2011 at 8:38am

      Well, before you embarrass yourselves further, I should tell you that my photo isn’t REALLY me. It’s Noelle Bush, daughter of Jeb Bush (you know, the good one). Actually, it’s ONE OF her mug shots taken after being arrested for prescription fraud. Wait, it gets better, Jeb’s wife was arrested for smuggling jewelry into the U.S. Don’t ya just love dynasties?

      TEAbow

      Report Post » your sensei  
    • IAMMADDOG
      Posted on November 23, 2011 at 9:46am

      Gee I wonder what we will find out about Obama once his records opened up for all to see? IF there ARE any records.

      Report Post »  
    • Jhdeib51
      Posted on November 23, 2011 at 4:42pm

      That is the beauty of the free market system. We, as individuals, are free to make a choice in what we do with our money. We can make the choice to lose money by doing improper math, or in this woman’s case not thinking through the limitations of her production facility. If she would have done her due diligence she would have realized that she had a good chance to lose money. So I do believe that I will carry on. I will carry on supporting good honest people doing what is right for them as well as their neighbor. I will carry on shaking my head at non-sensical business decisions. And I will carry on worshiping a God who loves me and loves you. It’s funny how God can love you so much yet you fail in all the things he asks of you. One day you will grow past the pessimism that envelops your whole being and finally blossom into a truly loving and caring person whose life is lived in service of others, not whose life is to be served by others. Have a happy Thanksgiving and God bless you and your family.

      Report Post »  
  • lodgerat
    Posted on November 22, 2011 at 10:18pm

    I don‘t know for sure but It could be George Bush’s fault…LOL :)

    Report Post » lodgerat  
  • tbconrad
    Posted on November 22, 2011 at 10:17pm

    All she has to do now is to run the campaign again but offer a 40%-50% and she will be golden. Ahe now knows where her loss point is.

    Report Post »  
  • Locked
    Posted on November 22, 2011 at 10:10pm

    GroupOn has a history of doing stuff like this. It can be a great service, but business owners REALLY need to be be careful! Too much of a good thing, and all that…

    Report Post »  
  • Juli0229
    Posted on November 22, 2011 at 10:05pm

    I have to agree with almost all comments, she spent the money, she will make back eventually on customers that liked her product. She was honest, she has integrity. They only thing is about this article at first I think, wow, maybe I should try a cake… but now it sounds like it‘s something she can’t and doesn’t want to happen again. On the other hand, she could hire more chefs and workers and have a much bigger business. If only in America… see how lucky we are. Now, If we could only keep this Capitalist thing going.

    Report Post »  
    • SEPARATENOW
      Posted on November 23, 2011 at 7:24am

      I hope you’re right, but she will likely never make that money back. I’ve done the research with my ad agency. Bad stuff. Trial conversions to actual full price customers is under 10%.

      Report Post » SEPARATENOW  
    • MadmanMike
      Posted on December 12, 2011 at 10:47pm

      I have to agree with SEPARATENOW,
      I worked in the restaurant business for 16 years,
      and I never saw coupon deals ever help a restaurant,
      only hurt it. You’re bringing in customers that are only
      there for the deal and most likely won’t come back
      unless they can get the same deal again. The few
      that do come back will never make up for the loss
      you incurred. If you read Restaurant magazine they
      have always strongly discouraged discounting as a
      way to improve business. Your customers are in a
      certain income bracket, and the coupon clientèle
      are in another. So appeal to your clientèle by running
      specials that appeal to them. You run a 75% off deal
      and you lose all credibility and loyalty. People now see
      you as someone begging for their business rather than
      providing a premium service. The right people will always
      pay for quality. If you sell a quality product, be proud of it
      and don’t drop the price. A friend of mine was a window
      and door salesman and installer. He never negotiated on
      the price. If people wanted a discount, he would just simply
      say, “that’s the price, take it or leave it. I only sell the best
      and I do the best job installing and the best costs money,
      shall we proceed with this deal or not, up to you?”
      He had a thriving business that he couldn’t keep up with.

      Report Post »  
  • repup
    Posted on November 22, 2011 at 9:31pm

    In america we write that off on our taxes

    Report Post »  
    • Pouncing Porcupine
      Posted on November 22, 2011 at 10:06pm

      You obviously don’t own your own business. In America, we take it in the shorts just like this lady did. Then on our schedule C, we can expense it out as a loss. We still have to pay all of the initial costs out of pocket.

      Report Post » Pouncing Porcupine  
    • FToth84
      Posted on November 22, 2011 at 10:23pm

      @ PORCUPINE 2 Thumps Up!! All real business owners know what that will do to cash flow.
      No Cash Flow No Business!!!!! It really is that simple.

      Report Post » FToth84  
  • macpappy
    Posted on November 22, 2011 at 9:14pm

    This was an exercise in promotion 101; offer a loss leader, then earn it back with the new customers you brought in. She will be in fine shape if 10% of those customers come back.

    Report Post » macpappy  
  • lukerw
    Posted on November 22, 2011 at 9:10pm

    You have to Limit your Liability… by offering Discounts to a Limited Number of New Customers!

    Report Post » lukerw  
  • Tunesmith
    Posted on November 22, 2011 at 9:05pm

    How did this go horribly wrong?
    She knew her costs going in, and she decided to offer a ‘loss leader’. It happens all the time.
    She got 8500 customers that possibly never would have entered her doors to sample her wares. Even if she only turns 10% of them into repeat customers that’s a pretty good return.
    Plus if you factor in the free press she’s getting now, spending $20K for all that exposure seems like a pretty good deal.
    Businesses spend a lot more than $20k and get a lot less results all the time.

    Report Post »  
  • fobama
    Posted on November 22, 2011 at 9:04pm

    How is this Groupons fault? Isnt it the owners? as a small biz owner myself, I would never make that kind of mistake.. This story blaze makes no sense at all!

    Report Post » fobama  
    • badgesjacksonSOUNDEDcool
      Posted on November 22, 2011 at 9:19pm

      @fobama didn’t read anything about them blaming groupon. that’s the beauty of the blaze! not a blame game

      Report Post »  
  • djmaine
    Posted on November 22, 2011 at 9:03pm

    Too bad she can print her own money.

    Report Post »  
  • JimmyP
    Posted on November 22, 2011 at 9:02pm

    That’s allright, Rachel, here have a cupcake.
    Owwwwwwwwwwwwww Yesssssssss!

    Report Post » JimmyP  
  • JimmyP
    Posted on November 22, 2011 at 9:01pm

    Gotta give the girl credit though, she honored her word.
    May have the last laff as people feel sorry for her and come back and back and back.

    Obviously not a Brit Lib!

    Report Post » JimmyP  
    • Shasta
      Posted on November 22, 2011 at 9:05pm

      You are so right. She honored her commitments, unlike the OWS crowd.

      Report Post » Shasta  
    • macpappy
      Posted on November 22, 2011 at 9:17pm

      That is true, but was not the idea to bring in a whole lot of new customers? If not, then what. Looks like the ole girl got messed up on her gozintas, and forgot to carry the one.

      Report Post » macpappy  
    • GeneTracy
      Posted on November 23, 2011 at 7:57am

      You’re right.Honoring your commitment is a rare commodity these days.

      Report Post » GeneTracy  
  • IvanK
    Posted on November 22, 2011 at 8:59pm

    Wow, Seems like this business owner made a horrible mistake *BUT* it really shows her integrity to make good on her mistake.
    I will say that that I find it a little hard to understand why she discounted her goods so deeply. She obviously screwed up but as I said, Kudos to her for sucking it up and making good. Wouldn’t it be nice if most of the major corporations out there had her integrity? Instead, so many out there screw their customers without even blinking an eye.

    Report Post » IvanK  
    • hammerbayer
      Posted on November 22, 2011 at 10:33pm

      The major corporations would declare bankruptcy and ask Obama to bail them out. They would gain 8500 new customers and we the taxpayers would have to flip the bill and see no return on the future profits from this endeavor.

      Report Post » hammerbayer  
    • MadmanMike
      Posted on December 12, 2011 at 11:04pm

      Great comment IVANK.
      The corporate world takes a loss and then cries and gets a bail-out from all the wimpy little brown-nosing politicians they are paying under the table, and then the taxpayers have to cover the loss. She should have run for office in Reading and then she could have taken some of the money from the coffers to cover her loss. Isn’t that why business people get into politics? They suck at business so they run for office and steal money instead? We have politicians here that have become multi-millionaires by running their little scams under the table and using their connections to rip off the public and private sectors. I live in a place where the son of an ex-politician owns a large ski-hill.
      His father was the biggest crook ever to “serve” in public office. I vote for Rachel to rule the world!!! She could go down in history as the only honest politician on the planet.

      Report Post »  
  • dontbotherme
    Posted on November 22, 2011 at 8:58pm

    Oh no! Boy, what a horrible way to learn a lesson! It’s wonderful that she followed through on the discount though.

    Report Post »  
  • Bookster
    Posted on November 22, 2011 at 8:55pm

    Yeah, she was losing $3 per batch but hey, she made it up in volume! Oh, wait…….

    Report Post »  
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