Two Chicago businesses find themselves on the ropes this afternoon, according to the Tribune. The first company, Groupon, has problems many people predicted long before their IPO:
Groupon and its compatriots in the much-hyped daily deals business were supposed to change the very nature of small-business advertising. Instead, it is the daily deal vendors that are racing to change as evidence mounts that their business model is fundamentally flawed.
Critics say the torrid growth that enabled Groupon to go public at $20 a share just a year ago was fueled by merchants buying into a new type of marketing that they didn't fully understand. The discounts offered through the Groupon coupons have turned out to be costly, and the repeat business they generate uncertain.
A Raymond James survey of roughly 115 merchants that used daily deals services during the fall found that 39 percent of merchants said they were not likely to run another Groupon promotion over the next couple of years. The top reasons cited were high commission rate and low rate of repeat customers gained through offering a promotion.
Yeah, no kidding. These flaws have been obvious from Groupon's beginning. I have one outstanding Groupon and one outstanding Living Social deal, and I'm not sure when I'll get to use either. After that, meh.
The other company, Hostess, has hit an unexpected and possibly fatal labor dispute that may force it into out of reorganization and into liquidation:
On Friday, Hostess-employed members of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union began to strike nationwide, blaming a “horrendous contract” that they claimed could cut wages and benefits up to 32%.
Workers picketed or honored the strike in Sacramento, Los Angeles, Oakland and Seattle and in states such as Ohio, Tennessee, Illinois and Montana. Hostess said in a statement that the walk-offs could lead to layoffs for most of its 18,300-member workforce and a sale of its assets “to the highest bidders.”
“A widespread strike will cause Hostess Brands to liquidate if we are unable to produce or deliver products,” according to the statement. The Irving, Tex.-based company, which was founded in 1930, acknowledged that “the concessions are tough.”
So if you like Twinkies and Ho-Hos, you'd better stock up. (Don't worry; they keep.)