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Baker Has to Make 102,000 Cupcakes For Grouponers 611

Posted by samzenpus
from the be-careful-what-you-wish-for dept.
Rachel Brown, owner of the small Need a Cake bakery, became a victim of the old adage, "Be careful what you wish for. You might just get it." More than 8,500 people took Rachel up on her Groupon offer of a 75% discount on a dozen cupcakes, forcing her to make over 100,000 cupcakes to fill all the orders. In the end Brown lost almost $20k. "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. 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," she told The Telegraph. "We are still working to make up the lost money and will not be doing this again."
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Baker Has to Make 102,000 Cupcakes For Grouponers

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  • by CanHasDIY (1672858) on Tuesday November 22, 2011 @12:06PM (#38137452) Homepage Journal
    The 'Law of Unintended Consequences' strikes again!

    75% off is a seriously deep discount, what did she expect would happen?
  • by RogueyWon (735973) * on Tuesday November 22, 2011 @12:06PM (#38137466) Journal

    ... be careful about the special offers you advertise online. Groupon isn't at fault here - if anything, the complaint is that it did its job too well. If you put a sign in your window offering a special offer, you can take it down whenever you want. If you stick something out on the net, you need to be very sure that you can handle a bit of scaling around the response.

    Still, full credit to the bakery for actually meeting the orders. I suspect lots of far larger retailers would have tried to weasel out of the deal they'd offered in a situation like that. And so far as I can see from TFA, nobody is talking about lawsuits.

  • by pyite (140350) on Tuesday November 22, 2011 @12:07PM (#38137472)

    I may hate Groupon, but this person has no one to blame but herself. Do the math. If you sell that many coupons, even if only a fraction of them are redeemed, that's a lot of cupcakes.

  • Bussiness 101 (Score:1, Insightful)

    by Moheeheeko (1682914) on Tuesday November 22, 2011 @12:12PM (#38137586)
    "For the first 100 people" would have been a good stipulation on that groupon. That would actually serve the purpose of the offer. The first 100 would get cheap cupcakes sure, but the following of people after the first 100 would likely buy cupcakes anyway without the coupon because of the "well, im here, might as well" attitude a lot of people have.
  • Re:Geez... (Score:5, Insightful)

    by Fujisawa Sensei (207127) on Tuesday November 22, 2011 @12:14PM (#38137626) Journal

    Yes, people are very bad a math.

    As evidence I cite MegaMillions, Power Ball, and the continued existence of Vegas with its billion dollar hotel/casinos.

  • Re:Geez... (Score:4, Insightful)

    by MozeeToby (1163751) on Tuesday November 22, 2011 @12:19PM (#38137726)

    Math and lotteries only don't work out if you base your math on the idea that $100,000,000 is worth 100,000,000 x $1. It is not. Above a certain number, large sums of money become "anything I want and never have to work again" which people value at much more than 100,000,000 times "a cheap cup of coffee".

  • Re:Geez... (Score:3, Insightful)

    by Dog-Cow (21281) on Tuesday November 22, 2011 @12:20PM (#38137728)

    A lot of people gamble for the fun of it, you know. There is value to the thrill of potential winnings, and that value may very well be greater than the dollar amount spent.

    Granted, there are a lot of suckers too, especially in Vegas.

  • Groupon's fault (Score:5, Insightful)

    by Maximum Prophet (716608) on Tuesday November 22, 2011 @12:24PM (#38137812)
    I don't see how Groupon can be considered long term viable, if this is the kind of press they're getting. This lady will never be doing that again, and she's going to go to her local chamber of commerce meetings and say, "I had a bad experience with Groupon". Any salesperson from Groupon will have an uphill battle selling to anyone in that area again.

    How hard would it be for Groupon to make the default limit be a small number? If the business selects a large number with a large discount, then their forms could ask, "Can you really service this number of customers over this time?"

    I know it's easy to blame the baker for this mistake, it's not a viable business strategy to kill your customers. Customers are supposed to be bled slowly, so that you can bleed them some more tomorrow.
  • by Anonymous Coward on Tuesday November 22, 2011 @12:25PM (#38137838)

    I may hate Groupon, but this person has no one to blame but herself. Do the math. If you sell that many coupons, even if only a fraction of them are redeemed, that's a lot of cupcakes.

    The point is that promoting your business via Groupon is very often a big mistake, unless you have a lot of perishable unsold inventory.

    Selling via Groupon doesn't do much to build your business, since most Groupon buyers are cheap - instead of looking to become regular full-price customers, they will look for the next Groupon.

    The customer is loyal to Groupon, not the businesses that sell via Groupon.

  • by Nom du Keyboard (633989) on Tuesday November 22, 2011 @12:38PM (#38138058)
    This is only the latest GroupOn horror story, and many of them probably don't make the press. Personally I won't even use GroupOn because I feel so sorry for the retailers involved. It's a personal decision.

    The next horror story will be from the people scammed by the IPO who thought that they were buying into a company that actually created something of value. Hard to believe that Google once offered billions ($5.75 billion, I believe) for this vaporware company -- and GroupOn actually turned them down. That was the luckiest turndown since Yahoo! refused Microsoft's (by today's standards) insanely generous offer.
  • by AngryDeuce (2205124) on Tuesday November 22, 2011 @12:40PM (#38138096)

    Two pounds a piece? Four dollars a cupcake??

    Jesus Christ, do people really have that kind of disposable cash laying around these days? They'd better be some life-altering cupcakes for that price.

  • Re:Geez... (Score:5, Insightful)

    by Nom du Keyboard (633989) on Tuesday November 22, 2011 @12:48PM (#38138270)

    Yes, people are very bad a math.

    As evidence I cite MegaMillions, Power Ball, and the continued existence of Vegas with its billion dollar hotel/casinos.

    You don't understand that buying a lottery ticket is more than just owning an almost non-existent chance of winning enough money to actually change your life. It is the opportunity to spend a buck or two and spend several very pleasant days fantasizing about what life would be like if you do win. Seen that way, it isn't a bad bargain at all. It's certainly better than spending that couple of bucks on some high fructose corn syrup favored carbonated water that's tough on your liver, metabolism, and overall health.

  • Re:Geez... (Score:5, Insightful)

    by Firethorn (177587) on Tuesday November 22, 2011 @12:52PM (#38138314) Homepage Journal

    Unless you are already quite rich, you should NEVER take that bet

    Yeah, but GP's point was that human's math sense is broken at those high levels. Those who can handle the differences and have certain other traits are the ones who get to be rich.

    Those who's math sense is broken worse than average are the types buying lottery tickets as a retirement strategy.

    Yes, the marginal utility of the next $ when NetValue=$1M is much less than when NV=$1. But humans typically don't think that way.

    You're doing pretty good if you can conceptualize that a million bucks is just a million bucks.

  • by Dr. Manhattan (29720) <sorceror171.gmail@com> on Tuesday November 22, 2011 @12:54PM (#38138350) Homepage

    There's more to a thing than the some of the components: whether it's a baked good's ingredients or a iPhone's transistors.

    Exactly.

    How long do cupcakes take to bake? How much does the oven cost to run? How long do they take to cool before you can begin decorating? How long do they take to decorate? How long do the utensils take to clean between batches, plus the resources (water, soap, drying time) to do so? How much fridge space do you have, and how much do they cost to run? How much are you paying your staff? Note that for a big rush like this at least one of them will be on full-time register duty and unavailable for baking/decorating. Is anyone going to be free to take new orders (e.g. that couple that came in planning to spend a few hundred on a wedding cake...)?

    The raw ingredients are one of the smallest contributors to cost.

  • by TVDinner (1067340) on Tuesday November 22, 2011 @12:56PM (#38138380)
    I owned a mall-based cookie/cafe store and also a pretzel store. Margins on meal normally run 3x-4x the cost of ingredients to account for labor, electricity, waste, etc. that the poster stated above. But the margin on bakery goods depends on the holding time of the good. The longer the item lasts, the lower the margin needed. On the cookies we sold, the holding time was 3-4 hours and the margin was around 6x-7x. For pretzels, the holding time was 30 minutes and the margins are around 30x-40x. That pretzel you buy at the mall is SERIOUSLY cheap to make, but you throw them out ALL the time because they get stale so quickly. My favorite item to sell was bottled water. Lasted basically forever and and I made 10x margin on it; even better than my fountain drinks. And believe me, it's true when they say most of the profits a store makes is between Thanksgiving and Christmas. the busy season at the mall really helps because you crank out goods and your not throwing stale items away like you do during a normal period.
  • by poetmatt (793785) on Tuesday November 22, 2011 @12:57PM (#38138400) Journal

    so basically, she made a completely moronic business decision, but the article's slant is that it is the fault of groupon? Is this woman not aware she could have set these at a price that would have been reasonable as opposed to bankrupting?

  • by Grizzley9 (1407005) on Tuesday November 22, 2011 @12:59PM (#38138436)

    Yea, I was thinking the same thing.

    Oh look, Italy is out of money! (continues eating $5 cupcakes)

    Correction: Italy's government is out of money. Spending your cash in the market place actually helps the economy no matter the ridiculous price of the cupcake.

  • by jank1887 (815982) on Tuesday November 22, 2011 @01:06PM (#38138570)

    you say that, yet we had people decide over the course of a couple years that a $0.50 cup of coffee was now worth $3.95. Of course they'll pay $5 for a cupcake.

  • Do the math (Score:5, Insightful)

    by Temujin_12 (832986) on Tuesday November 22, 2011 @01:09PM (#38138612)

    My wife owns her own photography business (just her and an employee) and she had been toying around with the idea of using Groupon and LivingSocial. As much as she hates spreadsheets, I made here sit down and model what the deal looked like and what her break-even points were. Talk to your Groupon/LivingSocial rep. to get stats about similar deals (as much as they can give you)--quantity, conversion rate, customer conversion, etc and be conservative since the rep will definitely paint a rosy picture. After doing that, she made some very important changes to the structure of the deal she made with LivingSocial that protected her against some run-away scenarios that would have cost her money like this person ran into and the LivingSocial deal has been a great success.

    The other thing, hinted at by the owner of the bakery is your brand. If all you're concerned about is pushing product and volume, then a low-end price for the Groupon/LivingSocial deal is the way to go. But be aware that the lower the barrier to entry the less the customer values you or your services. For service-based businesses (like my wife's photography company), a higher price for the deal is more likely to bring customers who value service and quality. You can still offer good discounts while having a higher price point by carefully choosing what you discount and what they are purchasing up front.

    Bottom line: know who your optimal customer is and do the math or you're likely to get burned.

  • by Skraut (545247) on Tuesday November 22, 2011 @01:17PM (#38138760) Journal

    A few months ago a local restaurant had a Groupon which my wife purchased. It was a 5 course dinner for 2 for $20 on weeknights, or $30 for Thursday - Sunday. Within 2 days she received an email from Groupon stating that the restaurant was no longer honoring the deal. Groupon gave us a full credit (not refund, just money we could use towards another deal) Ever since this, my wife has not wanted to go back there.

    The irony of this was that we discovered this restaurant through a different deal website, and it quickly became somewhat of a regular for us. Honoring a previous deal made us customers, not honoring a subsequent deal made us no longer customers.

  • Re:Very common (Score:3, Insightful)

    by Tenebrousedge (1226584) <tenebrousedge@NospAM.gmail.com> on Tuesday November 22, 2011 @01:18PM (#38138792)

    In e.g. Ohio, the legal minimum wage for tip-earning workers is a miserable fraction of the normal minimum wage, and employers do not have any obligation to improve that. The American way is to fucking tip your waitstaff, because that's their primary income. They're lucky if they don't have to split their tips with the house, or other servers.

    You think minimum wage ought to be enough for anyone? Wake up and smell the 21st Century. Not tipping your wait staff isn't your private revolution: it simply makes you a sociopath of the meanest degree.

  • by Talderas (1212466) on Tuesday November 22, 2011 @01:25PM (#38138916)

    The fault of GroupOn is an inability to set limits in the number of coupons issued. A 75% discount was probably still profit for her but that profit was erased because the quantity of coupons from GroupOn vastly exceeded her production capability so she had to hire more employees to meet the demand. That is expensive. If GroupOn allowed a limit to the number of coupons, say 2,500 then she many not have needed the extra employees and not suffered the losses from it.

  • by Rary (566291) on Tuesday November 22, 2011 @01:31PM (#38139018)

    so basically, she made a completely moronic business decision, but the article's slant is that it is the fault of groupon? Is this woman not aware she could have set these at a price that would have been reasonable as opposed to bankrupting?

    From TFA:

    Mrs Brown, who had only expected a few hundred orders, said that the experience was “without doubt, the worst ever business decision I have made”.

    Sounds like she's well aware that she made a bad business decision. What the article doesn't clearly state is what options Groupon provided her in terms of prices she could offer or limitations on the number of groupons sold. At the end of the article, a Groupon representative says that there was no limit placed on the number sold, and that "(w)e approach each business with a tailored, individual approach based on the prior history of similar deals." This doesn't really tell us much, but it is entirely possible that Groupon sold Mrs. Brown on the idea by providing her with unrealistic expectations based on "prior history of similar deals".

    It's also possible that she isn't actually blaming Groupon at all. The article makes that claim, but the quotes from Mrs. Brown only talk about her own underestimation of the response to the deal.

  • Re:Geez... (Score:4, Insightful)

    by mr1911 (1942298) on Tuesday November 22, 2011 @01:36PM (#38139124)

    Yes, people are very bad a math.

    As evidence I cite MegaMillions, Power Ball, and the continued existence of Vegas with its billion dollar hotel/casinos.

    The common refrain "the lottery is a tax on those bad at math" is incorrect.

    The correct euphemism is "the lottery is a tax on hopelessness". For $1, they get a sliver of hope they will change their lives and live happily ever after.

    Go ahead and cite math. Go ahead and point out that lottery winners often blow through their winnings rather quickly and wind up no better than where they started. Go ahead and talk to yourself since logic and reason take a back seat to emotion with most people.

  • by Tharsman (1364603) on Tuesday November 22, 2011 @01:44PM (#38139242)

    In these case they do. These are baked same day, thats part of the "gourmet" deal. The specfic article seems to list the woman managing the store as the owner too, so yea it seems to be entirely local.

    With the business being local, it means all the luxuries that business owner endulges in, will spread money (building new home? gardner? restaurants? buying a car? etc.)

  • by eepok (545733) on Tuesday November 22, 2011 @01:45PM (#38139252) Homepage

    Are you talking about "Sprinkles"? There's one in Newport Beach and my partner and I went there, knowing we'd be wasting our money, to buy their cupcakes and make up our minds on the value of their boutique pastries. We spent $39 on a dozen assorted.

    Our conclusions? The cake is no better than a correctly prepared Betty Crocker mix and the icing, while pretty, comes way too thick and very simple in flavor.

    Don't get me wrong. I'm not a "gourmet" hunter who thinks he can tell a $50 bottle of wine from a bottle of two-buck-Chuck. In fact, I will admit bias against these boutique places that give MASSIVE price mark-ups to otherwise cheap food under the banner of "gourmet" or "artisinal" (don't get me started on the "gourmet tamales" they sell at my local farmer's market...). So when I say a flavor is "simple", I'm saying it's nothing special that would justify such a massive cost increase.

    Summary: Spending $39 on a dozen cupcakes was a waste of money. People who pay so much for a simple pastry are stupid (self included) and those who think they're eating something with amazing flavor and tastably high quality have been fooled.

  • by cygnwolf (601176) on Tuesday November 22, 2011 @01:52PM (#38139340)
    No, but it does mean that I'm not going to pay $4 for the name brand on a cupcake when I could get the same cupcake for $0.89 at the no frills mom and pop bakery around the corner from my house except that it came in a plain paper cup.
  • by blair1q (305137) on Tuesday November 22, 2011 @02:07PM (#38139534) Journal

    A limit is self-defeating. If you want one person to get a 75% discount, you might as well want everyone who gets a chance to get a 75% discount.

    Groupon's issue is that it's aggressive about marketing these overgenerous discounts to merchants. So her mistake was engendered by their suggestions. If Groupon used its statistical information wisely, they'd have guided her to a discount level that would get her a reasonable increase in business, not a flood.

    But Groupon doesn't really care if the merchant is happy. It's trying to sell stock, and what sells stock is gaudy revenues for itself.

  • by vux984 (928602) on Tuesday November 22, 2011 @02:07PM (#38139542)

    Merchants simply fail to actually do so.

    Not quite. The merchants that elect to set reasonable caps don't get their promo run. So you don't see them.

    Groupon runs the deals that make them the most money.

    If a cupcake business wants to run 200 coupons @ 75% off for $7where groupon takes half ($4.50) that's only $900 for groupon.

    Groupon simply won't run that deal.

    Groupon pushes hard for deals they damn well know don't make an ounce of sense for the business.

    When I hire a contractor, or a consultant, or an ad agency... their job is fundamentally to come up with a good solution for the the business.

    If a particular contractor consistently advises, even pushes businesses hard to make catastrophic decisions then they deserve some of the credit for those catastrophic decisions.

  • by Rary (566291) on Tuesday November 22, 2011 @02:17PM (#38139670)

    Well yes, he claims that it has always been Groupon's policy. Of course, that was stated in response to a particular case [businessinsider.com] in which the business owner claimed that Groupon refused to allow a cap on the number of groupons sold.

    We can't be sure what deals and limitations the various groupon salespeople actually present to retailers, but it's completely naive to think that Groupon is completely blameless in cases like this simply because the CEO issued a sympathetic press release.

  • by raehl (609729) <raehl311@nOSPam.yahoo.com> on Tuesday November 22, 2011 @02:20PM (#38139710) Homepage

    Because you're buying them for an "occasion".

    If you are tasked with providing dessert, stopping at wal-mart on the way to whatever occasion it is to pick up a dozen cupcakes for under $10 is tacky.

    But if you stop at the "gourmet" Cupcake place and spend $40 on "special" cupcakes, that's OK.

    You're really paying for the ability to buy your way out of having to actually bake without the social stigma of being too cheap/lazy.

  • by Burning1 (204959) on Tuesday November 22, 2011 @02:22PM (#38139738) Homepage

    Never ever heard the term "loss leader" have we? Frys makes a lot of money selling $100 cables to the guys who buy $500 TVs.

  • by raehl (609729) <raehl311@nOSPam.yahoo.com> on Tuesday November 22, 2011 @02:28PM (#38139812) Homepage

    ...What's the price of advertising in all the newspapers etc that are covering this story?

  • by dondelelcaro (81997) <don@donarmstrong.com> on Tuesday November 22, 2011 @02:28PM (#38139814) Homepage Journal

    A "gourmet" cupcake is made in exactly the same oven with exactly the same ingredients as a regular cupcake...

    Just like a computer contains the same silicon and rare elements as any other computer, the devil is in how they're assembled and put together, and the skill with which someone makes them. A "working" program is made in exactly the same compiler with exactly the same syntactical constraints as a segfaulting program

  • Re:Very common (Score:5, Insightful)

    by residieu (577863) on Tuesday November 22, 2011 @03:40PM (#38140664)
    Mr. Pink's rant wouldn't be funny if he didn't have a point.
  • by RajivSLK (398494) on Tuesday November 22, 2011 @04:12PM (#38140996)

    Exactly this. Except the $0.89 cup cake at my local grocer is made with mostly lard and sugar with waxy poor quality chocolate and lard icing and comes in maybe 3 different flavours and is sold in very high volumes at a low price.

    Whereas the specialty cup cake is made with real butter high quality chocolate and other ingredients and is available in 20 different flavours and is sold in low volumes at a high price.

    Basically think of Neapolitan ice cream from some big manufacturer vs Baskin Robins or some such. You can argue that they are overpriced for what they are but you can't say that the products are exactly the same.

    One last point I'd like to make is that in some other countries in world, like France for example, specialty bakeries making high end pastries and cakes are the *only* types of bakeries. People are so willing to pay for higher quality food that there are no cheap grocery store alternatives. So maybe it's not a fad.

  • by RajivSLK (398494) on Tuesday November 22, 2011 @07:41PM (#38143368)

    I'm an Idiot? Really, that's how you start your argument... wow. I don't even know why I bothered reading the reset of your comment. When you start a response with "You're an Idiot" it just makes you sound stupid.

    Firstly, I don't really care how "controlled" a factory is. I didn't say that the factories used inedible or poisonous ingredients. I'm sure everything they use is approved and won't make you sick. Just like Neapolitan ice cream from the grocery store is perfectly fine to eat.

    Secondly, I don't care what you think "everybody in the industry" knows. Appeal to authority doesn't help your argument.

    Thirdly, I never said anything about organic ingredients so I'm not sure why you brought it up. When I said high quality ingredients I meant things like real vanilla bean in a vanilla cup cake instead of "artificial vanilla flavour" or saffron in a saffron cup cake. Or orange zest in a orange cupcake instead of "artificial flavours and colours". I suspect you would know this if you ever left your mom's basement.

    Fourthly, they are not ALL lard. Almost all specialty shops use real butter. Just Google "specialty cupcake ingredients". It's not that hard. You live in a really vacuous world if you think you can't get a real butter cupcake.

    I am guessing that you don't travel much and haven't experience things and people out of your comfort zone. You probably don't feel welcome in new environments and around new people. Probably because you flippantly call people "idiots" and then go on to say the stupidest things. I suggest you try being a bit more buttery to people perhaps little sweeter and more sugary and then, perhaps, you will make something called a "friend" or even multiple "friends". And maybe, just maybe, one of these "friends" might even buy you a cupcake, with real butter.

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