Young & Hungry has the batter-soaked blow-by-blow on the shuttering of the trimestrial Back Alley Waffles. Co-owner Craig Nelsen pointed the finger at Groupon’s business model as the reason he was forced to close after the small Blagden Alley storefront offered a two-for-one waffle deal through the popular group-buying site:
From the Back Alley Waffles Web site:
“Now, keep in mind, the bulk of the Groupon activity (i.e., the big surge in customers) occurs at the outset of the Groupon campaign. That means the business has to lay out all the money (in our case food and labor) up front to service this expensive campaign, but it takes roughly a month for Groupon to send the (deeply discounted) payment for the waffles those customers ate. And even then its only half or less of what is owed. 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.
That’s the part that I didn’t expect and the part that put our new business out of busniness.
Reached by phone this morning, Nelsen said previous experiences with other social couponing sites ScoutMob and Living Social had been positive, but Groupon’s compensation method proved onerous for the small operation. “Groupon was a backbreaker,” Nelsen said. “We couldn’t pay staff or get food or anything. The world seemed very dark at that point.”
Back Alley Waffles was a small operation from the get-go. “Admittedly, we were operating on a shoestring,” Nelsen said. When a Post reporter visited during the store’s first week in April, he found the business unexpectedly closed, out of ingredients after a rush of publicity from Prince of Petworth and Urban Daddy. But after hearing of neighboring business Sundevich’s positive experience with Groupon, Nelsen signed up. “What took me by surprise was that the big surge comes up front, but they spread the payments out,” Nelsen said. “I might have jumped without checking very well.”
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 said. “It doesn’t seem so permanent today.”
As for the $450 waffle-and-muraling deal Nelsen is advertising on Back Alley’s Web site, he’s serious (if tongue-in-cheek), though nobody has taken him up on the offer ... yet.
Update: 3:20 p.m.
Groupon spokeswoman Julie Mossler responds via e-mail:
“Mr. Nels[e]n initially approached Groupon and our merchant advisors structured a deal to best encourage overspend and help his business grow. We also required Back Alley to cap the number of Groupons sold to ensure the feature was in the best interest of both consumers and the merchant. We scheduled his feature on his terms, on a date he selected, under a contract he reviewed and signed. According to our records, only 132 Groupons, or 18% sold, have been redeemed since Back Alley ran two months ago, and Mr. Nels[e]n has received 2/3 of his share of the revenue to date. We always hate to hear that a local business has decided to close, but the math does not point to Groupon as the cause.”