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LivingSocial in Deal with Whole Foods

September 13, 2011

LivingSocial's new national deal with Whole Foods is the biggest thing to happen to the daily deal site since Amazon.com.

According to Reuters, consumers will have the opportunity to receive $20 worth of products at Whole Foods for $10. The offer will be cut off once one million vouchers are issued. A similar LivingSocial deal with Amazon in January topped one million vouchers, according to Mashable.

The deal with Whole Foods comes at a good time for LivingSocial on the news of research showing it losing market share to rival Groupon in August.

According to Yipit, LivingSocial's market share fell from 22 percent in July to 20 percent last month. In terms of revenue, Yipit told The Wall Street Journal that Groupon saw a 13 percent increase in August while LivingSocial declined three percent.

Discussion Questions:

Discussion Questions: Are "big" deals such as those made with Amazon.com and Whole Foods the future of daily deal sites such as LivingSocial and Groupon? Will an offer of $10 in savings be enough to draw consumers to Whole Foods who are not regular customers at the chain's stores?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

What percentage of those purchasing the Whole Foods/LivingSocial deal would you estimate will be new customers to the grocery chain?


The only strategic purpose of a brand like Whole Foods working with LivingSocial is incremental market gain. This suggests that Whole Foods believes that LivingSocial can not only expose the brand to non-Whole Foodies, but also convert them.

My hope is that Whole Foods measures this carefully and can give some clear insights on its effectiveness.

Doug Stephens, President, Retail Prophet

It sucked me in (but then I love WF and they just opened one down the street from my house).

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Dr. Stephen Needel, Managing Partner, Advanced Simulations

I think sites like Groupon, Teambuy and LivingSocial are going to have to stick with 'big deals' with big retailers. I have done some research with local merchants who have used Groupon and Teambuy to see if it's an effective marketing tool and the early responses are that it's a waste of time and money. These deals do nothing to build loyalty and in effect kill the opportunity to build a bigger basket. Customers come in, spend the amount in the deal and leave. As for Whole Foods, I don't think $10 in savings will help drive the bottom line. Whole Foods is an expensive grocery store with a limited customer range.

Doron Levy, President, TheMortgageMachine.ca

If you are a customer of Whole Foods and a LivingSocial participant then a coupon for $10 savings is certainly a good deal. On the other hand, would $10 savings be enough to entice someone who is not a Whole Foods (sometimes referred to as Whole Paycheck) customer to give the store a try? debatable.

I would expect a large majority of the redemptions will come from existing loyal customers such as Dr. Needel. Some customers will come from people who will buy $20 (or as close to it as they can). I don't see a any significant adoption by new customers.

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Steve Montgomery, President, b2b Solutions, LLC

There are a host of reasons why this is bad, not the least of which is how it will attract people who never shopped there before, notice the higher prices and tell their friends. "I had a coupon" isn't great word of mouth.

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Bob Phibbs, President/CEO, The Retail Doctor

Daily deal sites will offer a combination of deals: some national, some regional, some local and some ultra-local. Living Social and Groupon are doing just that. This gives consumers choice and variety.

The Whole Foods deal might draw in some new customers, but the value of the offer isn't big enough, especially with Whole Foods' reputation as "Whole Paycheck."

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Max Goldberg, President, Max Goldberg & Associates

An offer of $10 in savings to get new customers to come to Whole Foods will appeal to many people. But when those non-addicted to the Whole Foods "magic" see that those $10 in savings are absorbed quickly by other high-ticketed purchases, one's mind will start to calculate. Nonetheless, the quest for savings is bred in all of us, indicating that such "big deals" will mushroom and flourish until a newer and bigger promotional devices are born, which will happen.

Gene Hoffman, President/CEO, Corporate Strategies International

I think Whole Foods should have attached that LivingSocial coupon offer to their 365 brand, which, overall, has great products at very sharp price points. That, to me, would have been a way to expose new shoppers to an experience of value for the dollar at a chain that will always have to battle the "Whole Paycheck" perception. In doing so, they may not have reached one million coupons, but IMHO they would have increased the odds of return visits from more new shoppers.

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Anne Howe, Principal, Anne Howe Associates

My guess is that when the dust settles, WF will have actually gotten little or no incremental revenue as the primary users of the coupon will be regular shoppers who simply keep $10 in their pockets. I'd be looking pretty hard at average transaction statistics.

As far as margins, look at the bright side. WF will be up against easy numbers this time next year.

Bill Emerson, President, Emerson Advisors

(Full disclosure: my company, Incentive Targeting, introduced load-to-card daily deals to grocery with Groupon at Big Y - and at Supervalu.)

Whole Foods is, in essence, placing a $10 - $15 million bet (1 million deal cap times $10 discount each, plus LivingSocial commissions of up to 50%) that the publicity, new shopper acquisition, basket lift, and change in long-term shopper behavior driven by this program will outweigh the costs. The tragedy is that at the end of the day, it will be impossible for Whole Foods to tell what the real ROI and impact was.

Will $10 off $20 entice new shoppers to the store? Will those new shoppers come back? Will existing shoppers buy more, or simply subsidize their current purchases? And are there even enough shoppers out there who haven't heard of Whole Foods (or haven't tried it), but who are subscribed to Living Social, and who can be tipped over by a $10 discount?

These are all critical questions to understanding the program's impact on Whole Foods' business. But since the deals are not tied to a loyalty card (since Whole Foods doesn't have one), they will not be able to tell which shoppers are buying, which are redeeming, and how their long-term purchase patterns are affected.

Ben Sprecher, Business Development, Google

Big national offers will continue to be a minority of daily deals. They are most decidedly not the only future.

Daily deals have evolved just like coupons, direct mail, online advertising and any other response medium. They serve national and local advertisers.

National advertisers present big buys and quick scale. But they evaluate results in a complex and prolonged fashion.

Local advertisers buy small territories and fill remnant inventory. They tend to evaluate outcomes simply and quickly.

Daily deals are maturing quickly, from $873M in 2010 to $4.2B in 2015, according to BIA/Kelsey. Consumers will value higher relevance and specialization--by category and location. Both the major players and the independents will bring this demand to local advertisers.

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Dan Frechtling, SVP Product and Marketing, CMO, G2 Web Services

A $10 savings for a restaurant I like will grab me. A $10 saving for Whole Foods? No, not even a second thought. It will cost me considerably more when the cashier finishes totaling my purchases than had I gone to my local Publix. Please, no "yes, buts...,"

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

Update -- just got back from WF after using my $10 coupon. I spent $30 and, had I just gone to WF, would probably have spent $10, given the 3 things I needed that they were likely to be the only store to carry (you would think Chimmichurri would be more widespread, but apparently not).

Point is, they got $20 out of me they likely wouldn't have gotten, less the $10 coupon. If they made an incremental $10 on every shopper, at 1 million shoppers, this would be a pretty good deal for them.

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Dr. Stephen Needel, Managing Partner, Advanced Simulations

I'm a Whole Foods fan and jumped right on the coupon this morning. I like Whole Foods for not only the quality products, but for a terrific experience. (No Publix here.)

I could see there being another benefit besides new customers. I think the coupon will entice regular customers to try new products or splurge on things they wouldn't normally buy; i.e. Stephen Needel's experience.

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Doug Fleener, President and Managing Partner, Sixth Star Consulting

The two big questions for WF to answer:

1. Will existing customers, who will likely comprise the vast majority of coupon redeemers, increase the size of their market basket when they have an extra $10 of open to buy? And if so, will it be by more than $10?

2. What will new customers attracted by the offer buy, and how many will become regular WF shoppers?

I think the first can be answered with moderate precision by looking at average tickets during the next 10 days when redemptions will be high. The second one will be tougher to answer without making a lot of assumptions. Given my personal bias, I would think they could drive average baskets higher using in-store promotions, digital signage and mobile tie-ins for less money...and be able to measure results with more precision.

Ken Goldberg, CEO, Real Digital Media

Deal sites like LivingSocial and Groupon represent the movement of brands from mass marketing, to a more consumer-centric way of messaging. There now exists a direct, 2-way relationship between brands and consumers, where they tell us what their expectations are. A smart marketer listens, and delivers on these expectations. In this way, a marketer can actually grow their brand loyalty base. Ideally, a site LivingSocial brings in new customers who retain the deal, to your front door. And while a $10 deal may not bring in an entirely new shopper to Whole Foods, this deal may incent a current but non-loyal Whole Foods shopper to select this retailer for their next shopping trip rather than a competitive store that they consider a viable option as well. It's then your job as the "Brand" to (1) ensure they have an excellent shopping experience and (2) communicate with them, through social media, online review boards, mobile apps, etc., to find out their likes/dislikes, and make the appropriate changes. Marketing is a 2-way street; take advantage of it!

Ronnie Perchik, Founder/CEO, PromoAid

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