Groupon To Launch National Restaurant Chain

 

Not really, but one could be forgiven that flight of fancy, given the moves it has been making in the restaurant (and small merchant) space. 

With its core business shrinking and its management style not really helping, the hunt has been on for diversification.

Attempt #1 a few months ago was Groupon Goods which seems to help merchants – both big and small – dispose off unsold inventory (and possible introduce brands to consumers at lower prices), a la Woot and to some extent, Overstock.com. Its most recent quarterly results in fact indicated that Groupon Goods was growing faster than its core business. On the face of it, this is good strategy – Groupon customers are already used to snagging deals for restaurants, etc., and they might be interested in buying real/physical things off of Groupon too. But unfortunately, retailing is a low-margin, hyper-competitive business. So tech-savvy retailers such as Amazon and its ilk (Amazon is already a major investor in LivingSocial) can be hardly expected to sit idle and it is likely that Groupon Goods may not (be allowed to) grow after a point.

Groupon-Goods

(A pet first aid kit for sale on Groupon Goods recently)

Given the retailing environment then, it makes more sense for Groupon to leverage its existing scale (the number of sales people canvassing local neighborhoods in most major metro areas) and try to embed itself deeper in the neighborhood stores and restaurants space, or what I would call the “local experiences” (restaurant meals, yoga classes, circus tickets and such) space. 

And that is precisely where it seems to be headed by doing two things: (a) enabling more customer-merchant transactions and (b) making those transactions more efficient for merchants. In both cases, additional value is created and Groupon is positioned to capture some of that value.

Moving towards making transactions more efficient, last week, it announced its entry into the payment processing space and instantly took on Square and any number of other players jostling for their share of this market. Since most local merchants are super cost conscious, this gambit aims to cut their costs:

Existing Groupon customers that use the reader will pay transaction fees of 1.8 percent plus 15 cents for cards from Visa Inc., MasterCard Inc. and Discover Financial Services, For American Express Co. cards, fees will be 3 percent plus 15 cents. Card readers offered by Square charge 2.75 percent per transaction, while PayPal has a 2.7 percent fee.

A Reuters article details how Groupon is better for some merchants based on transaction size and how Square is better for others. With no clear leader today (Square is one, kind of, but it doesn’t have an insurmountable lead I think) and given Groupon’s scale, one could expect pretty decent market penetration for Groupon going forward. 

Then, in terms of enabling more merchant-consumer transactions, this week, it announced that it was acquiring an Internet-based restaurant reservation system called Savored – whose “reservations + discounts” model is something of OpenTable meets Hotwire, and

Savored is meant to supplement the existing Groupon Now service, which is aimed at giving customers a list of discounts should they decide to indulge in impromptu shopping.

So, where is Groupon headed? I don’t think it will launch its own restaurant chain, but, I am almost sure it will continue to make other acquisitions in the local merchant ecosystem (it does have some money in the bank, thanks to its IPO). Ultimately,

Groupon aims to reach a size where it will become the “operating system” for local commerce, as Chief Executive Andrew Mason put it earlier this year.

That, is what makes this a very exciting time to be in local commerce.

Mass retailing has see a number of improvements over the years – from Walmart’s highly sophisticated supply chain systems to Amazon’s own ordering and shipping/distribution systems – but local commerce was largely left alone.  Now, with Groupon (and its imitators), aspiring to become the Amazon of local commerce, this should change in the next few years with consumers and merchants both benefiting. 

 

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