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How Did Groupon Nearly Ruin a Bakery Business?

lamantin, Flickr

Groupon deals can be great for helping small businesses build a following, but for one bakery in the UK, offering a cut-rate deal on cupcakes nearly bankrupted the shop.

Rachel Brown’s Need a Cake bakery offered a 75 percent discount on a dozen cupcakes, bringing the $40 price down to $10. What she didn’t expect was for 8,500 people to take her up on the deal, which meant a shop that normally produces about 1,200 cupcakes per month was suddenly expected to make ten times that amount.

As a result of the massive demand, she had to bring in temporary workers at a cost of $19,500 — which resulted in a loss of between $2.90 and $4.70 on each batch of cupcakes she sold, wiping out all her profits for the year. What’s worse, the temps weren’t as skilled as Brown’s normal employees and thus didn’t produce the same high-quality product.

“Without doubt, it was my worst ever business decision,” she said. “We had thousands of orders pouring in that really we hadn’t expected to have… 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. We are still working to make up the lost money and will not be doing this again.”

Heather Dickinson, international communications director for Groupon, said that while companies can state in their contracts that only a certain number of vouchers can be sold, Brown didn’t request the limit in hers, adding, “Need a Cake wanted to run a national deal with us, but we advised them to feature in a few cities so they wouldn’t overextend themselves.”

Guess she should have turned to Seize the Deal, huh?


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