Thursday, November 03, 2011

Would you buy Groupon if you could?

If you're unfamiliar with groupon you're going to get a full rundown of the company over the next 24 hours.  Here's the concept: Joe's coffee shop wants to drum up business so they sell a $10 gift certificate to customers for $5 through Groupon.  Groupon gets to keep about 30-40% of the $5 (so call it $1.50) and the other $3.50 goes to Joe's coffee shop.  Now Joe has to sell $10 of his coffee for $3.50 which is basically his cost, but if 200 new customers make Joe's part of their morning routine it was a smart piece of marketing.

Well, that's when everything goes right.  The more likely scenario is that Joe is swamped with 1,000 coupon users on the week after his Groupon but most of those customers never come back because the next week they bought a $10 gift certificate for coffee from Jan's Coffee down the street.  The problems with this company are so numerous that I'm stunned that they are bothering to go public when they should be focused on trying to stay in business.

Groupon has a chance to be the pets.com of the Web 2.0 era in my opinion.

Now, with all of that said, there is a chance that the financial media will lose their minds talking about this stock tomorrow. You see Groupon is offering less than 5% of the company for sale so there will be some demand for the stock and with everyone chasing those scarce shares there could be a bit of a feeding frenzy. I liken this to the frenzy that breaks out in clubs when a DJ tosses a t-shirt into the crowd.  Everyone in the club could afford 1,000 cheap t-shirts but people would practically kill themselves to get $5 shirt. It makes little sense to chase Groupon tomorrow, but people will clearly try to get that t-shirt.

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It's that time of year again to start complaining about home heating costs and the penalty we pay for living off the natural gas grid.  New discoveries of natural gas and advanced recovery techniques have held the price of natural gas in check in recent years.

However, the price of propane is tied directly to the cost of its inputs - namely crude.  Thus, the average price of propane is up 14% in NYS vs. this time last year.  However, we get the ultimate raw deal in the North Country where the average cost per gallon was $3.32 last week (up 19.8% from last year!!).  It's also interesting to note the wide spread in propane prices across the state.  The low is just $2.69/gallon in Western New York to a high of $3.40/gallon in Long Island (just slightly above our $3.32 price).  In the North Country we're paying 23% more than the current price of propane in Western NY. 

I'll be glad today when I walk by my giant pile of pellets in the garage :)

1 comment:

Anonymous said...

You mention that "the average cost per gallon was $3.32 last week" per NYSERDA, I surmise. Here are some recent dates together with the lowest price available on each date for residential heating propane in the Watertown, NY area:

11/1 $1.949 (as earlier mentioned)
10/5 $1.990
9/13 $1.949
9/1 $2.020
8/1 $2.075
7/5 $1.979

I concur that that's 18% or so over what I paid when I tanked up in the early Fall of 2010, but it is well below both NYSERDA and top-end vendors.

Best.