Groupon has elicited gripes from businesses who do deals with the site about how long it takes to get paid, but now a waffle emporium in D.C. claims that the three-month wait for money from Groupon has put it out of business... three months after it opened.
In April Craig Nelsen opened up Back Alley Waffles in the Shaw neighborhood of Washington and did what lots of new small business owners do: put a deal on Groupon offering $16 worth of waffles for $8. The way this works is that people pay Groupon their $8 and then take a certificate to redeem at Nelsen's waffle house. The money comes later from Groupon (which usually takes a 50 percent cut). The promotion was very popular. So popular that there are many reports that customers would show up to a sign at the front door saying they had run out of Waffles and the staff was running out to Safeway to get more ingredients. But unlike other businesses who have been blindsided by their Groupon deal's popularity, Nelsen was more than happy to make more waffles, but he ran out of money. As he wrote in the notice above posted on the restaurant's website, dealing with Groupon is not easy if you're a new business with tight cash flow. "The business has to wait for most of the remainder of its money until two months after laying out the cost of the food and labor. And for some of the money, it will be three months after honoring the customer's Groupon coupon in the shop before the business is paid for that customer," he writes. "That's the part that I didn't expect and the part that put our new business out of business," he continues. Nelsen admitted that he could have done his homework better. He told The Washington Post, "What took me by surprise was that the big surge comes up front, but they spread the payments out. I might have jumped without checking very well."
Not being paid promptly is a common complaint in all walks of business. And The Wall Street Journal's Sarah Needleman and Shayndi Raice wrote about how daily deal sites that compete with Groupon were trying to lure businesses by offering prompter payment terms. And that's why Nelsen's tale is such a serious one for Groupon's own business: Groupon doesn't just have potential coupon buyers to keep happy. It needs happy merchants to keep coming back. Businesses doing deals with Groupon have already complained about the sudden, unmanageable popularity a deal can create, as well as general their doubts that the coupons are doing much to create loyal customers. But those headaches are much easier to confront if they are getting paid. Groupon spokeswoman Julie Mossler told The Journal, "We believe Groupon's payment terms are fair to merchants and important to protect consumers." Groupon, whose stock trading well below its $20 debut price at around the $7 mark, claims it does this to protect customers and will refund those who never got to redeem their deals — which is presumably what will happen for anyone who's still holding a Back Alley Waffles deal. Or they can just hold out hope Nelsen will reopen one day. Nelsen wouldn’t rule out the possibility of reopening at some point in the future. “Even though I owe them money, the staff has decided to try it again,” he told The Post. “It doesn’t seem so permanent today.”
Update 3:00 p.m.: Groupon has provided us with their side of the story, suggesting that the payment situation wasn't what drove Back Alley Waffles out of business. The company says that according to their records, only 18 percent of the vouchers sold had been redeemed between when the deal started in mid-June and now. And, that, to date Groupon had paid Nelson his cut for two thirds of those. "We always hate to hear that a local business has decided to close, but the math does not point to Groupon as the cause," Groupon spokesperson Julie Mossler told The Atlantic Wire.
She also reiterated why the company maintains the payment schedule, even after gripes like this from merchants. "The reason we have never offered a one lump check is that it actually protects us," she continued. "The merchants that need that quick infusion of cash are the ones that are going out of business. If they close the week after they feature, we have to take care of our customers via refunds and there is no recourse for us." To that effect, those who didn't get a chance to redeem their Groupon will get their money back in full from the daily deals company, she added.
This article is from the archive of our partner The Wire.