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