Why I’m not surprised about Groupon South Africa’s demise

Today Groupon South Africa announced it is shutting its doors with a simple message on its website: “We are sorry to inform you that as of 4 November 2016 Groupon has wound down its operations in South Africa and we are unable to offer you any deals today.”

It’s hardly surprising though considering that the American e-commerce business, which is also a listed entity, announced losses of $35.8 million for the third quarter ending September 2016 and that it’s closing down 12 branches, reducing its presence to 15 countries, from 27.

As soon as the results were announced, the future of the South African business came into question. It wasn’t, after all, one of Groupon’s core markets.

Can I get my money back?

Groupon has declared that it will honour deals that customers have bought, but time is of the essence and you can’t afford to linger on the deal, especially if the item you receive is faulty. “For our customers, this means we will stop offering deals on our website from tonight. All current vouchers bought will remain valid until the date stated on the voucher. The terms and conditions on the voucher remain the same. For any customers who are uncomfortable with using their voucher, we are offering a cash refund option if they contact us before 30 November 2016. Goods purchased up to 4 November will be fulfilled. Should you need to return a Goods item you purchased, please do such before 30 November.

“If you need to speak to a member of the team about your Groupon you can contact us via telephone on 021 201 7100 or email at support@groupon.co.za before 30 November.”

Why did Groupon fail? 

According to commentators the business model was unsustainable. In the beginning, just like with most other things, Groupon was a fad. It was popular because it was new and was able to land great deals and discounts with product and service providers that were well known. But soon kinks started to develop in this particular armour as companies realised that for them this type of partnership with Groupon was usually a loss leader.

Initially, Groupon was fine if you wanted to get your company known. But in most instances paying Groupon’s fee and offering a discount on the platform was not a profitable way to do business. With the number of partners in the market willing to do this type of deal dwindling, the business model was starting to unravel. Consumers started to see the same old deals with restaurants and beauty salons and others, such as fish pedicures and online courses, over and over again.

It’s a shame to see Groupon go because the concept itself sounds good. Companies get some publicity out of it while the customer ‘saves’. But here’s the thing – I’m not sure if customers saved a great deal because most of the deals comprise of luxury items and services, such as holidays, meals out and other experiences. While these were discounted it did encourage you, the consumer, to spend money on things you don’t really need. And with costs rising in South Africa and more people struggling to make ends meet, perhaps it’s a good thing that Groupon bows out. 

Can you trust Groupon’s competitors?

With a major competitor having left the South African market, smaller group buying websites like Daddy’s Deals, Wikideals, DealZone, BulaDeals and group buying aggregator Deal Africa may be rubbing their hands with glee as they circle in to grab market share.

But now that Groupon is gone it may not be plain sailing for them either as with such a major and familiar force having left the market the trust for the competitors may not be the same for the consumer or businesses that used to or would have partnered with them.

Sadly, the same repeat business is cropping up with other group buying websites too, much in a similar pattern to Groupon, before it was forced to shut some of its doors. History does repeat itself, so perhaps consumers should be wary about buying deals off these sites.

However, if Groupon’s competitors do go bust there is recourse for the consumer to take. Rosalind Lake director of Norton Rose Fulbright, which specialises in competition and consumer law points out that under the Consumer Protection Act (CPA) if a supplier goes into liquidation or business rescue, liquidators have to consider what is owed to consumers.

But she warns that this could be a long, laborious process and if a company does exit the country, the road to getting a refund could be even trickier.

*Justmoney asked Groupon South Africa for comment but despite numerous efforts to contact with the company, it failed to provide a response by the time of publication.