Groupon Horror For Need A Cake Bakery

When Need A Cake Bakery owner Rachel Brown decided to put up a 75% discount on a dozen cupcakes on the Groupon site, she never expected it to become the worst business decision she had ever made, one that would set her back by more than £20,000 and wiping out her profits for the year.

After 25 years in the baking business, Mrs Brown knew her exquisitely decorated cupcakes were popular. So when she decided to drum up a little extra trade with a Groupon discount deal, she never expected herself to bite off more than she could chew.

Swamped by orders, Mrs Brown, who normally makes 100 cupcakes a month, found herself having to bake an astonishing 102,000.

And disastrously, because her deal had been so generous and the demand so huge, she made a £2.50 loss on every order – wiping out her profits for the entire year.

The cupcake catastrophe started when the 50-year-old cook posted a deal on money-saving website Groupon.

She offered subscribers to the site a 75 per cent discount on 12 cakes – selling them for £6.50 instead of the usual £26. Her offer on the website invited customers to ‘construct their ideal cupcake, choosing from sponge flavour, icing and decoration options’.

And it certainly proved tempting. She was inundated by a cup-cake frenzy, with over 8,500 requests after underestimating the popularity of the discount deal with Groupon.

Mrs Brown, from Woodley, near Reading, said: ‘We only expected to get a few hundred orders out of it but we had thousands and thousands pouring in. We had to cut it off at 8,500 orders.’

Her company normally employs eight workers, but it had to spend an extra £12,500 on 25 agency staff and distribution.

U.S.-based Groupon is a ‘deal-a-day’ website offering coupons to subscribers, giving discount deals on anything from restaurant meals to spa treatments. It uses collective buying power to achieve lower prices and the deals it offers are available only if a minimum number of people sign up. Companies that offer deals hope to gain new custom or sell extra goods to customers during their visit.

Heather Dickinson, Groupon’s international communications director, said there was no limit to the number of vouchers that could be sold.

She said: ‘We approach each business with a tailored, individual approach based on the prior history of similar deals.’

She added there had been ‘constant contact’ with Need a Cake and this was the first time she had heard the company had experienced difficulties.

But Mrs Brown has refuted this claim, saying she has written records of correspondence highlighting the problem.

Meanwhile, a message on her website informs customers the deal is no longer available.

It reads: ‘The Groupon offer is now closed. We regret that we cannot process any unused vouchers as they have now expired with Groupon.’

“It’s been an absolutely nightmare,” Mrs Brown said. “Without doubt, the worst ever business decision I have made. We had thousands of orders pouring in that really we hadn’t expected to have. A much larger company would have difficulty coping.”

It brings up the always-present question about the daily deals site: does Groupon suck for small businesses?

Well, it looks like most small businesses think so. An overwhelming majority of 70% hate Groupon, if the latest survey from iContact is to be believed.

Small businesses like Need a Cake Bakery thrive on relationships with their local customers, not crowds of outsiders coming in to snatch up an irresistible offer. It is good to do a promotion to get new customers but in this case, the bakery rewarded the wrong customers. Those 8,500 people that rushed for the Groupon deal most probably won’t be coming back to buy the same cupcakes at quadruple the price.

Mrs Brown said that cupcake quality suffered from the unusually high order demand.

“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,” Brown said. “We are still working to make up the lost money.”