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Groupon miscue menaces downtown restaurant

October 17, 2011

A Groupon deal sold so well it promised to drive a herd of diners to Creation Cafe.

Trouble is that the popular eatery along Canal Walk said it didn’t agree to Groupon’s offer of a 62-percent discounted dinner to 2,600 diners—who are now coming in to redeem the deals.

“What do you mean you can’t use them?” Creation co-principal Lynn Shepherd said of the reaction by many diners after restaurant staff break the bad news.

Shepherd said the Groupon deal that ran Sept. 30 to Oct. 3 wasn’t the deal Creation had been negotiating with Chicago-based Groupon, a claim the company disputes.

Creation said it was the first restaurant in Indianapolis to work with Groupon, but its fifth and latest deal might be its last.

“We are extremely upset by this entire fiasco and want to thank our customers for their patience and understanding,” the restaurant says in a letter to customers posted on its website.

Shepherd said Groupon put an aggressive twist on the final version of the deal that she said she was not given an opportunity to proofread.

Because the restaurant changes its menu in the fall, it is not able to offer some of the dishes Groupon included in the offer.

“If everyone redeemed [this deal] in the next six months, we would go out of the business,” she added.

Shepherd said the restaurant tried unsuccessfully for 14 days to get Groupon to inform customers the deal was not authorized. She said the Internet marketing sensation was not responsive until late Friday. Then, Groupon told Creation it would give refunds to those who purchased the deal.  As of early Monday morning, she had not seen the e-mail being prepared to customers from Groupon.

Fortunately, most customers coming to redeem the errant Groupon deal have been understanding, Shepherd said. Free appetizers have appeased all but a few who became honked off and walked out of the building shared with Euphoria restaurant at  337 W. 11th St.

In an e-mail to IBJ, Groupon officials said the discount was not offered in error: "Groupon doesn't feature a merchant without a signed contract—we had approval from one of the owners of Creation Cafe to run this deal with all terms approved," the e-mail said. "After the deal sold more aggressively than either side anticipated, we reached out to the business to expedite payment and offered recommendations to handle the traffic. The goal of each Groupon campaign is to bring valuable customers to every merchant while guaranteeing a great experience for our subscribers. When it became evident that Creation wasn't going to take care of our customers, we canceled the deal and offered all purchasers a refund."

Shepherd said she isn’t sure whether Creation will use Groupon again. Despite earlier successes, she said the Chicago company’s approach has become too aggressive for her taste.

The darling of the Internet marketing world this year has faced a growing number of complaints from its customers. Several lawsuits have been filed in federal courts seeking class-action status on behalf of Groupon customers who complain the deal vouchers expired before they could use them.

Customer Jason Cohen of Delray Beach, Fla., in a suit filed earlier this year in federal court in Florida, alleges that the Groupon concept violates federal and Florida law prohibiting the issue of gift certificates with expiration dates.

“Groupon and its retail partners bank on the fact that customers often will not manage to redeem ‘Groupon’ gift certificates before the limited expiration period," states the suit.

About a year ago, Groupon turned down a $6 billion purchase offer from Google. So the latter is developing its own daily deal site, called Google Offers.

E-mail daily discount sites have become increasingly popular but are struggling to make money.

Groupon posted a first quarter loss of nearly $114 million.

“Groupon’s fundamental problem is that it has not yet discovered a viable business model,” Rob Wheeler, a fellow at Harvard Business School’s Forum for Growth and Innovation, wrote in August. “The company asserts that it will be profitable once it reaches scale but there’s little reason to believe that.”

Maybe Groupon should have redeemed Google’s purchase offer, Shepherd said.

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