Article

Big Y Foods pioneers Groupon use for grocery marketing

Retailer says there is 'big power' in store-specific coupon deals.

June 26, 2011

By Graham Shelby

Big Y Foods is hoping its new partnership with Groupon will pay off in a big way and the early results show promise, with some caveats.

On June 7, Big Y became the first grocer to offer store-specific coupons through Groupon. The first deal was $24 for a seafood item called the Shellfish Grill Pack that normally retails for $39.99. Groupon subscribers in western Massachusetts received notice of the deal. The following week, Big Y issued a second Groupon offering: $20 worth of Porterhouse steaks for $10. This two-day deal was aimed at customers of any of the chain's 60 stores throughout Massachusetts and Connecticut.

"We're happy with the initial results. I think it's encouraging," said Harry Kimball, the director of database marketing for Big Y Foods, which is based in Springfield, Massachusetts. The sales figures: 334 for the shellfish pack and about 1,500 for the steaks. He would not comment on whether or not the sale generated a profit.

Kimball said the steak deal could have resulted in even higher sales if Groupon had given the deal more prominence and wider distribution to the chain's potential customers.

"I had the understanding that there was going to be full visibility in all regions for at least the first day," he said.

Instead, Kimball says it appears that some customers saw the Porterhouse deal as their Deal of the Day. Others saw it, but in a less prominent display, other Groupon subscribers, including Kimball himself, saw no mention of the deal.

"I got up at 6 a.m. and I was excited to see the Groupon offer, and it wasn't there. I still haven't gotten a good explanation from Groupon as to why that happened," he said.

Groupon spokesperson Kelsey O'Neill explained in an email that the variation was a consequence of the way Groupon targets customers. "The feature deal customers see in their daily email varies based on their specific location, gender and shopping habits — we work to cater deals that make the most sense for each user. With that in mind, everyone can click through to see all deals on the sidebar of the Groupon.com market homepage."

Retail analyst Jim Lucas of advertising agency Draftfcb says in a new venture like this, there's going to be a learning curve for both sides.

"Groupon's model has worked really well for small, localized businesses because it could sell a spa or a manicure or sushi [and] get pretty good response rates from a targeted audience," Lucas said.

According to Lucas, a traditional grocery coupon offering for a widely consumed product like orange juice might have appeared in a local newspaper and had a return rate of five percent or less. Groupon's more targeted approach reaches fewer people, and while its response can vary widely depending on the product and the deal, Lucas says, "I've seen return rates anywhere from 15 to 65 percent."

This partnership was also innovative in that Big Y tied the Groupon deal to its customer loyalty, or Big Y Express Savings Club, card. Once Groupon issued the deal and online shoppers clicked "Buy," a prompt appeared with two links: One to click if they had a Big Y loyalty card and another to click if they didn't. Big Y card holders entered their card number before paying for the deal. Shoppers who didn't have a Big Y card were prompted to sign up for one in order to take advantage of the deal. Customers could pick up the purchased item on their next visit to Big Y and once their Big Y card was scanned, the Groupon deal would be credited to their purchase.

Customers have until September to redeem the two Groupon deals, so the full impact of the experiment won't be clear immediately.

Lucas said tying the Groupon deals to the customer loyalty card is unlikely to draw in many new customers, but it could help entice existing ones.

Peter Delloro is a Groupon subscriber, has a Big Y loyalty card, and does the grocery shopping for his family in West Hartford, Conn. Delloro said he often drives past the closest Big Y to shop at another chain because he doesn't like the current Big Y customer rewards system involving gold- and silver-colored coins, which he finds cumbersome and easy to forget. Delloro didn't take advantage of either of the first two Big Y-Groupon offers, but said, "I like Groupon. I trust Groupon. I have confidence in what they send me. If the deals they put together with Big Y are good, I'll go back to Big Y."

The next question is, will Big Y go back to Groupon?

Kimball says Big Y has no immediate plans for any further Groupon deals and that any issues of communication and execution must be addressed, but he expects the partnership to move forward. "We still sold fifteen hundred steaks. That shows there's real power in this."