Will Groceries Be a Fit for Groupon?

Can Groupon easily extend into the grocery coupon space? No, not at all easily. For starters, food producers used to “cents off” can’t really provide goods at 50 percent off, or more, and then provide a commission of 30 percent to 50 percent of sales.

But we can think of a number of reasons to greenlight a Groupon grocery venture. Even assuming that Groupon’s commissions go to 20 percent or less to make it work, a grocery venture would be highly coveted by a portion of Groupon’s largely female audience. It would also level the playing field as coupon competitors such as Redplum.com and Coupons.com try to use their volume to wage an offensive into Groupon’s deals space.

The biggest reason, though, may not be about driving sales for the food producers. The Nabiscos and Nestles can’t afford to do much of it.

In our view, it’s really about driving traffic into the stores. And the groceries might be willing to pay for that, especially if they can steer consumers to take out dining items, which are their high-margin plays, and also provide a linkage with their loyalty cards.

That’s Groupon’s current approach. Indeed, Groupon’s first loyalty card deal, with Big Y, a 61-store chain based in Springfield, Massachusetts, fits this description to a “T.” On June 7, 333 consumers put their Big Y member code onto the Groupon offer, instead of their credit card, buying a $39.99 “Shellfish Grill Pack” for $24. The offer was limited to 25 percent of local users so that the store wouldn’t be overwhelmed.

To be sure, the integration between Groupon, the retailer and the product suppliers will be a complex one and will boost infrastructure costs. Ultimately, the grocery players may prefer to focus on the coupon-to-card integration that the big circular companies are developing. But we still believe in the promotional power inherent working with Groupon as well. Let’s see how far it wants to push this.