At 9:30 on Thursday morning, the line inside The Butchers in north Toronto is eight customers deep, and it isn’t getting any shorter. As soon as one person leaves, another enters.
Behind the counter, six employees in candy-striped smocks hustle to take orders, slice meat and cash customers out. They have been here since 8 a.m. and they won’t get a breather until the doors shut 12 hours later.
This pace is a new phenomenon. The Butchers has been selling organic meat in this neighbourhood for 10 years, but its customer base exploded in January after owner Marlon Pather experimented with his first online daily deal promotion, equivalent to what Groupon is famous for.
Satisfied with the results, he did a second deal, then another. Ultimately he partnered with Dealfind and set a North American record for the largest promotion by an independent store in a single city. For $55, customers could cash in on $175 worth of organic meat. The Butchers sold around 11,500 of those coupons, raking in $632,500 in three days, a sales total that has been eclipsed only by deals for The Gap and Amazon that were sold nationwide south of the border.
But with success comes skepticism. Earlier this week a more lucrative promotion priced at $99 for $400 worth of organic meat went up for sale, and now another at the same price is available until Saturday night. Foodie blogs across the city have questioned whether the promotion is too good to be true. They wonder: Could this be a Ponzi scheme? Is Mr. Pather a flight risk? Is the meat really organic?
Mr. Pather has seen the criticism, and he has no qualms addressing it. “I don’t make money on this deal,” he says while taking a quick break from serving behind the counter. Instead, he explains to customers that this isn’t a hoax, it’s a loss leader, and that all he needs to do is find people who buy a little bit more than what the promotion is worth. “If I have 10,000 vouchers, and everybody spent $1 more … I have $10,000.”
And that estimate is low, he says. Earlier this week, a customer who bought one of the first vouchers was down to the last few dollars on it and ended up spending $120 extra. If that keeps up, Mr. Pather says, 1,000 customers who each spend $100 extra puts $100,000 in his pocket. Plus, the promotion is applicable only to fresh meat and some frozen foods. If a customer wants tandoori chicken breasts or pistachio-curried marinades, they have to pay cash.
Then there’s the marketing potential. “What people don’t realize is every customer that’s come into my store, they write their e-mail address,” Mr. Pather says, noting that the same applies to all home deliveries. With such a robust database now at his fingertips, he could do a deal on his own in the future and keep all of the proceeds rather than paying a daily deal site for their mailing list and advertising reach. (These services can be costly. Behemoth Groupon is known for its 50/50 cut – 50 per cent of proceeds go to the merchant, the remaining 50 per cent go to Groupon.)
Still, $120 of free meat for 11,500 people in just one promotion alone puts Mr. Pather $1.4-million in the hole right off the bat. It also puts enormous pressure on his suppliers, raising the question of whether they can keep up with his demand.
“At first, my suppliers were a bit nervous,” Mr. Pather says, but he’s made it work – at least for the time being. It’s the payment schedules from the deal sites that have been the biggest problem to date. Typically, bigger partners like Groupon and Dealfind pay their merchants according to a fixed schedule. A portion of the proceeds is transferred seven days after the deal ends, a bit more 30 days out, and the remainder after 60 days. That puts a strain on someone like Mr. Pather, who needs cash flow to order big quantities of meat.
