This week, Groupon SA announced the closure of its business. This follows after the world’s biggest groupbuying and deals website announced a loss of $35.8 million (R485 million) and that it’s exiting 12 countries this year.
“The company has identified its go-forward country footprint to consist of 15 countries, down from 27 in its portfolio as of the second quarter of 2016,” says Groupon in its third-quarter 2016 results.
Arthur Goldstuck, managing director of World Wide Worx, says he’s not surprised that Groupon has run into difficulty. “We’ve been saying for a while that the business model has run its course. We felt that, when the original founders in the South African business left, the writing was on the wall. The fundamental flaw is that people get hooked on the discounts and not the suppliers. The discount is a loss leader for the suppliers and you can’t build a business on that.”
There are also questions and concerns around whether Groupon and its partners will uphold vouchers that have been bought by consumers if it were to shut down its South African business’ doors.
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 are required to look at anything owed to consumers.
“So it’s likely that whoever winds up the business would need to sift through any outstanding Groupons or if anybody has paid money and hasn’t received things. But the process is uncertain. Whether you will get all your money back is not clear and could take a while,” she says.
Should Groupon not be in a position to pay suppliers, Lake believes this could become a messy situation but feels that the consumer still has protection under the CPA. “The CPA says you [the company] are responsible to the consumer and you can’t say that your third party service provider hasn’t performed. So consumers are likely to have a claim against both Groupon and the service providers.
“But it will be difficult if Groupon hasn’t met its contractual obligation and paid the money across to the suppliers, as this obviously puts them in a difficult situation as they will have to provide the service for free.” WHAT TO DO NOW? IS THERE STILL A FUTURE FOR GROUP-BUYING WEBSITES IN SA? There are a number of group-buying websites in operation in South Africa, including Wikideals, Daddy’s Deals, DealZone and, new entrant for 2016, Bula Deals, to name a few. But Goldstuck believes the industry’s days are numbered. “Because suppliers don’t stay, Groupon and other group-buying sites have to continuously find new suppliers. They will have to diversify from this model to offer value to suppliers and users if they want to survive.”
*City Press asked Groupon SA for comment but, despite numerous efforts to contact the company, it failed to provide a response by the time of publication.