Here’s a Sign Merchants are Starting to Really Like Groupon

Groupon is only as strong as the merchants with which it works, yet very little is known about the health and composition of Groupon’s existing merchant relationships. Our proprietary data helps us answer some key questions:

• Has Groupon saturated the local merchant market? Are new merchants entering Groupon’s platform?
• Are merchants who have already featured a deal on Groupon returning to feature a second or third deal?
• Are new merchants performing as well as repeat merchants?

Groupon Offering More Deals with Fewer Merchants

Groupon continues to grow its North American business by offering more and more deals – the number of deals it offered in Q1 2012 was up 12% from Q3 2011.

However, the number of merchants it is featuring in these deals is flattening over the same period, showing only 4% growth.

Groupon is leveraging its merchant relationships, offering more and more deals with the same merchants.

Repeat Merchants Drive Groupon’s Business

As the number of merchants Groupon features in a given quarter flattens, the composition of these merchants continues to change.

In Q3 2011, 84% of merchants Groupon featured had never run a deal on the site before. This number dropped to 70% in Q4 2011, and fell even further to 59% in Q1 of this year. Conversely, the number of repeat merchants is on the rise, now representing upwards of 40% of Groupon’s total merchants.

The distinction is even more pronounced when looking at the percentage of gross billings represented by each of these segments.

While repeat merchants represented 41% of the number of merchants featured in Q1 2012, these merchants accounted for 48% of company’s gross billings during the quarter. Over the last three quarters, merchants repeating on Groupon have consistently performed better than those running their first Groupon.

Repeat Merchants Perform 21% Better Than New Merchants

A large proportion of Groupon’s new merchants are featured in the company’s newer products: Groupon Getaways, its travel segment, and Groupon Goods, its consumer goods segment. Excluding these merchants, we can see a more noticeable impact of repeat merchants on Groupon’s core local deals business.

Repeat merchants now represent a majority of Groupon’s Local gross billings, increasing from just 33% in Q3 2011 to 56% in Q1 2012.

While reliance on repeat merchants may indicate that Groupon has saturated the market, these merchants are simply performing better. By looking at their performance on a per-deal basis, we can see that repeat merchants consistently perform 20%+ better than new merchants. 

Implications of Merchant Shift

What does this shift tell us about Groupon’s overall prospects?

• Merchants like Groupon: A merchant running a second, third or tenth deal on Groupon takes cooperation from both parties. Not only does Groupon want to feature the merchant again, but the merchant had a successful experience with Groupon and wants to be featured again. Merchants continue to be satisfied.
• Groupon is optimizing the business: Repeat merchants consistently perform better than new merchants, and Groupon knows this. Groupon is choosing to run deals with the merchants that it believes will perform the best, and these are many of the merchants that it has already worked with.
• Nurture existing relationships: Groupon has developed a set number of merchant relationships that is able to contribute to a larger proportion of its business. Groupon’s future will depend on keeping these merchants happy — as it is surely trying to do by launching a host of merchant tools, from Groupon scheduler to potentially even payments processing.

Get access to Yipit’s proprietary data

Yipit tracks the global performance of hundreds of daily deal sites including Groupon, LivingSocial, Travelzoo, Google Offers, and Amazon Local. Yipit licenses its data to leading investors and daily deal companies to provide real-time updates of market and player performance. To access Yipit’s data, contact data@yipit.com.

Sean Spielberg is an analyst for Yipit Data, which provides analysis of Daily Deal Industry performance using proprietary deal-tracking technology, rigorous testing of historical data, and industry insight.