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[18 comments]

Groupon wants Costco's customers

May 2, 2014

Groupon has launched a new online bulk-buying service, Groupon Basics, that promises to provide customers with big savings on more than 100 everyday HBC and household items.

The new service, which is available in the continental U.S., offers free shipping on orders of $24.99 and higher. As an introductory promotion, customers can get five percent back in Groupon Bucks to use toward future purchases.

"We're putting the bulk buying power of Groupon to work for our customers, helping them save on serious quantities of the things they buy and use every day — all from the convenience of their home," said Aaron Cooper, senior vice president of Groupon Goods, in a statement. "By adding this service to our marketplace, we're providing shoppers with great value and yet another reason to always check Groupon first. Best of all, there's no membership or monthly fees."

Groupon has put greater emphasis on direct sales to consumers in recent years as it reduces its reliance on daily deals. Groupon Goods, according to TechCrunch, achieved $1.87 billion in sales last year, up 25 percent from 2012.

Discussion Questions:

Will consumers be drawn to buying in bulk from Groupon? Will Groupon be able to achieve profitability without charging a membership fee similar to warehouse clubs?

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:

How likely is Groupon to succeed with its new bulk buying service?

Comments:

This may be good for Groupon, but Costco has nothing to worry about.

At first glance, Costco 's best asset is its low prices. But deep down, Costco has become a lifestyle brand for a lot of its customers, as well as a style leader for household goods. A trip to Costco is a pat on the back for busy professionals who want to indulge themselves with fine meat and stylish wines. As long as Costco retains its upwardly-mobile cache, it will be able to fight off competitors.

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Cathy Hotka, Principal, Cathy Hotka & Associates

First rule of any business: know who you are and who you aren't. How does this work with Groupon's deals-obsessed customer? Where's the scarcity itch they used to rub with their countdown timers?

Don't get me wrong, as the author of series of blogs about why Groupon was the Worst Marketing For Your Local Business back in 2010 when everyone else was touting how great they were, I think Groupon's fundamental promise to local business was flawed thinking.

But as a marketer, I'm not sure how this is a smart line extension - it seems a whole new business which Amazon does far better with much less commitment to large quantities.

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Bob Phibbs, President/CEO, The Retail Doctor

I looked at the items being offered by Groupon and won't be deserting Costco anytime soon. There are too few offerings from brands I don't know.

Costco has built the Kirkland brand into a powerhouse of private label, and they offer meats and produce that is superior to most local grocers. That's going to be hard for Groupon to challenge, even if Groupon does not charge a membership fee.

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Max Goldberg, President, Max Goldberg & Associates

If the price is right and fulfillment quick, I am sure consumers will buy. While memberships fees are a highly profitable revenue stream, that's not the only way BJs, Costco, Sam's Club, etc. generate profits, so I would say Groupon Goods has a chance of becoming profitable if they can find other ways to monetize their offering.

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Bill Davis, Director, MB&G Consulting

Groupon may find some niche busnesses where this idea can succeed, but I agree with Bob that this seems to be an idea without a clear connection to Groupon's core mission -- if the company still has one. When you consider that the real competition in this space involves Amazon, Walmart, Costco and other retailers with a lot of buying power and logistics expertise, it's hard to see how Groupon wil make much impact.

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Dick Seesel, Principal, Retailing In Focus LLC

This is another way to get at the wallet and it will work for some people. Today's consumer is easy to draw in, but tough to keep. Costco has a major edge on this basic effort because of their expansion in food/wine and electronics. Costco is doing great in other areas too, like optical services. They also have great tasting stations.

Last point (really): buying in too much bulk can be a waste of money for a shopper. You have too much inventory in your house that is sitting on shelves vs your cash sitting in your wallet. Be like a retailer and balance your in-stock assortments at home. Do not waste capital on bulk buys that will take over 6 months to depelete. If you are overstocked, re-gift the stuff on birthdays.

My Costco membership pays itself off with what I save - like their recent Supima cotton golf shirts for a great low price. The #1 cotton in the world in a shirt for $13. That is savings!

The future will tell.

Hey, it's Friday! No weekend WIRE!

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Tom Redd, Vice President, Strategic Communications, SAP Global Retail Business Unit

It is easy to understand why Groupon is trying this. It seems their original core offer of coupons, while far from dead, is now less than fresh. Fatigue has set in, as it had with multiple competitors.

In a market where everyone wants a deal and everyone can give someone a deal it remains hard to stand out. That is the worry here. The math is not positive. Groupon has far fewer consumers than Costco or Amazon. Both of these competitors can make money other ways while Groupon has no membership fees or services to base profit on like Costco, or the multitude of products and services at all prices of Amazon, one wonders what the USP for Groupon really is. Of course, current Groupon customers will respond, but there seems little basis for Groupon to win on price. With these items other than some view of convenience, what else is the differentiator that will draw them to Groupon?

Focus is always key to business success and growth. We have seen so many product announcements from Groupon, one must consider how focused they are. While it is right to do everything and anything to survive and grow, it still looks like too many tactics and not enough strategy.

Robert Heiblim, Principal, RH Associates

I'm already experiencing the first problem with the Groupon Basics. I placed an order a week ago, and it is still "awaiting fulfillment" in Hebron, KY. Nothing about the order status has changed since I placed and paid for the order. I still have no idea when the order is going to ship.

"Basics" are just that...things we buy and use on a regular everyday basis. Why would anyone want to wait an "unknown" period of time for common everyday items? Now I am looking at possibly buying a smaller quantity at Walmart, to get by on. I might just purchase the bulk items like I have always have at Sam's Club/Costco, and have extra when my "Groupon Basics" order finally arrives.

I will not take a "shot in the dark" chance at ordering "Groupon Basics" again.

Brian Kelley, Retail Sales Merchandiser, Advantage Sales & Marketing

Groupon Basics represents very little near-term threat to warehouse clubs. Sure, the lack of a membership fee is appealing (though Groupon undoubtedly will feel the margin pressure associated with it). But among the warehouse clubs, Costco at least is more about the experience than the too-good-to-be-true deals that made Groupon popular in the first place. For Costco's more affluent customer base, the broader assortment, including both the well-regarded Kirkland Signature and treasure-hunt/discretionary items, continue to drive traffic.

Instead, I view Groupon Basics more as an attempt to grab share of the quickly growing online grocery category. According to Planet Retail estimates, online grocery spending topped USD 10 billion in 2013, up 21.9% from a year ago.
Here, the company is taking aim at another formidable competitor: Amazon, which has been clamoring after a larger share of the online grocery business with a slew of initiatives, including Amazon Prime Pantry, Amazon Dash and Amazon Flow, not to mention Amazon Fresh.

Groupon appears to be a company in search of a raison d'etre amid a rapidly changing online market. Basics, however, takes Groupon yet another step farther from its core competency.

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Kelly Tackett, Research Director, Planet Retail

The Costco experience is far more than just acquiring your basic needs. It is an experience.

My experience with Groupon, if you could call it that, has been anything but stellar. One good Starbucks coupon. A disaster of an experience with a car wash coupon and a few others.

One thing Groupon is very good at is flooding your email daily with useless unwanted offers that in many cases are anything but an offer.

Costco on the other hand, gets more than I expected to spend with them each and every time I enter their doors.

I continue to allow the emails from Groupon just for laughs and with the hope that one day they may send another one for Starbucks. Their last one sent Starbucks' system into a tailspin, it was so successful. Why repeat something like that?

A membership fee to Groupon? Ha!

'Scanner'

The challenges that Groupon faces include both a branding issue and a potential business model challenge.

The brand Groupon is not connected well with bulk household items and grocery products -- the brand tends to be associated with local services (car wash, restaurants, etc.). I am not sure that consumers will quickly associate Groupon with the products that they want to feature.

The business model issue revolves around the heavy weight of bulk household and grocery items. It will be difficult for Groupon to match Costco pricing and still be able to deliver the product, net of shipping cost, at a price that consumers are willing to pay.

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Mark Price, Managing Partner, LiftPoint Consulting, Inc.

Groupon Goods is more than a product extension, it is a curious foray into another business.

To keep things in perspective, we have to pause and acknowledge that Groupon has posted sales of over $1.8 Billion, so it's got traction with "someone." But, that's not the question for today. It is, whether Groupon Goods will threaten Costco for leadership in its category.

The answer is simple, Groupon Goods is unlikely to threaten Costco for reasons others have mentioned including the shopping experience and the power of the Kirkland brand. As to it being a curious foray into another business, greater emphasis on this aspect of its business hints that the core concept of daily deals is entering a declining phase of business.

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Bill Hanifin, Managing Director, Hanifin Loyalty LLC

Corporations that struggle with increasing market indifference to the product and services they offer do so because they are not tuned into market needs and evolution. Groupon has allowed the company to stay the original course to the point of irrelevance that now is causing eroding sales and profit. What we may see as a search for a market they can adapt to with relative ease is more appropriately described as abandonment of the core business. While this is not a bad move in the fight to survive as a viable company in the face of adversity in this case it demonstrates the possibility of an inept company executive staff.

One of the largest areas of opportunity for e-commerce growth is the development of a truly portable electronic coupon. This is a concept that can be construed as a form of payment method, which could have user ID and portability much like a debit card, with loading and payment capability from and to multiple sources, managed by a single trusted site owned and operated by a company not unlike Groupon through secure socket communication.

In any event, this corporate evolution away from what they know best into a market that is the home of highly successful companies with formidable resources and a wealth of experience, might be seen as a giant leap from the frying pan into the fire.

'gjarnoldjr'

Is Groupon (even) still around? What I find incredible in this story is that they had almost $2B in sales last year. (I guess every Tom, Dick and Harry.com has a real chance at the 10-figure club these days). But anyway, Groupon may or may not succeed in their efforts, but if it's the former, it will be because they offer a superior experience - i.e., just like any other business that succeeds - I don't think the Groupon name will have anything to do with it. I wish them well.

'notcom'

Groupon may see a slight rise in business. But I do not see this as a problem for Costco or any other warehouse business. Groupon does not seem to be attractive to large/bulk buyers. Is business growth that bad now that we are seeing companies crossing the line to try to grow? Some ideas are not good. This is one of them.

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

One thing about this is that it is another piece to the pull of the consumer away from another shopping trip.

The Groupon offering is not just about Groupon. It is also about the manufacturer having another outlet to consumers to bolster their sales and profits of targeted products. I can see this happening where they may be able to increase production output of these staples.

Sid Raisch, President, Advantage Development System

Everybody in the internet world wants to sell groceries today, and I checked out the Groupon offerings for the new service. There just really isn't anything credible that would make anyone want to load up on stuff that has little sell appeal.

Some here believe that B & M stores are no longer relevant, and I still believe that there are plenty of people who still like going to supermarkets and shopping for themselves.

The future is not set in stone, but one thing remains perfectly clear to me, and that is consumers expect a deal, and regular price is not going to move any goods at all. Jump in my fellow retailers, and take a good look in the mirror to see if you're prepared to operate a store in this environment. Can you bring hot deals, and EDLP, and offer great service? If you can, than you may survive in a very difficult marketplace.

Consumers always win, as they have many choices, so you must fight hard for the business in your community, because everybody is selling the same thing you do.

Hey it's Friday, so enjoy the weekend.

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Tony Orlando, Owner, Tony O's Supermarket & Catering

Without that stellar private label behind them like Kirkland, not sure Groupon can keep up the pace. Just my 2 cents.

Lee Kent, Let's meet share and succeed in Retail, YourRetailAuthority

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