Tapping Into the Israeli Love Affair With Getting Anything for Less

That’s the secret of Groupon in Israel. ‘Give an Israeli a sale and an opportunity to screw the system, and he’ll buy,’ says its marketing chief.

The homepage of Groupon, as seen on a monitor.
Bloomberg

“Seven plastic containers with hermetically sealed lids, different sizes, to keep food fresh over time – starts at 99 shekels [about $20].” “Coat rack for 89 shekels.” “Set of steel pots, 12 parts, 299 shekels.” The list of items offered for sale is never-ending, but as I read down the daily newsletter I get from the “deals and coupons” website Groupon, because I registered for it, I’m challenged to find anything that would improve my life.

I go to the Vacations section on the site. A Hanukkah weekend in Bucharest for 1,273 shekels, a few days in Berlin for the same price and a weekend with tickets to a Coldplay concert in Barcelona for 2,992 shekels. That looks better, but if I’m going to travel overseas, it will be to a destination I dream of, not one that I happen on by chance. And if I’m going to go to a concert, it’s going to be by a band I really like, not one whose tickets cost at most 99 shekels.

And that is why, when sitting opposite Groupon Israel CEO Tomy Schoenfeld and the company’s marketing manager, Maayan Keller, and both ask me, “Haven’t you ever bought anything on Groupon?” I answer decisively, “No. I don’t use Groupon. Everybody who gives tips on informed consumption says one shouldn’t buy bargains because then you’re buying things you don’t need.”

Keller: “If that’s the case, you’re on the verge of denying Israeli citizenship. Give an Israeli a sale and an opportunity to screw the system, and he’ll buy.”

Schoenfeld: “We work hard to find users deals at significant discounts, often more than 50%.”

TheMarker: 50% is a lot. In every area?

Schoenfeld: “The general average is 50%. There are areas where it’s lower. In tourism, for example, the discounts we offer are 20%. On the other hand, there are products where the discount is 100%.”

TheMarker: “You’re not the only ones selling at a discount. There are a lot of goods and services that nobody in Israel buys at list price, but only on sale.”

Schoenfeld: “True. There are areas, like perfume, where products are offered all year for 1+1, and our presence is thin in areas like that. Our presence is strong in domestic areas, with services, like restaurant meals and spa treatments.”

100% discount?

Why would anybody give a 100% discount?

Schoenfeld: “For instance, as a sales promotion. It’s for businesses for which coupons are a means of marketing’ to bring the user to the door of the shop.”

Founded in 2008, during the financial crisis, Groupon now operates in 36 countries. Beyond the U.S. and Europe, it also operates in Thailand, Taiwan, South Korea and Japan. Schoenfeld, who is also responsible for the company’s operations in Russia, South Africa, Poland and the United Arab Emirates, has the background for his international job. After his army service as an officer in the drones squadron, he studied psychology and economics at Columbia University in New York and, after graduation, worked for some years in the American financial system, first at Lehman Brothers, then as an adviser in the management consulting firm Mitchell Madison.

He subsequently set up two startups: Fitango, in New York, which engaged in self improvement, and Callapp, in Israel, which offered a mobile app to get details on callers. He was promoted to CEO of Groupon a little under two years ago, after serving in various capacities at the Company from 2011.

“Relative to other consumers, the Israeli likes last-second offers,” Schoenfeld says, mapping out the different national reactions to bargains. “The European is already booking his next summer vacation, while the Israeli is looking for a place to spend the next two weeks, or a concert this weekend.”

Keller: “Even if vacations are just as big an expense for an Israeli as for a European, they buy it as casually as if it were a candy bar.”

Schoenfeld: “Comparing Israelis to Americans, in the U.S. people like to buy in bulk, which is less of a thing in Israel.”

TheMarker: Bulk buying causes you to buy things you don’t need.

Schoenfeld: “When it’s a consumer item like diapers, you’ll use everything you buy, no matter how long it takes.”

What differences have you found between the Israeli customer and the Polish one?

Schoenfeld: “Relative to the Pole or South African, the Israeli is prepared to pay a relatively high price, even on Groupon, as long as the quality is good and the discount is too. We offered meals at chef restaurants for a price that was not low, 500 shekels for a couple at Mona in Jerusalem, or 290 shekels at Shaul Aderet’s restaurant Mr & Mrs Lee, and that didn’t stop Israelis from buying.”

TheMarker: “Coupon consumers aren’t supposed to be wealthy people who ply chef restaurants.”

Keller: “There are people wealthy enough to have personal assistants who sort and buy our coupons for them.”

What do they buy in the UAE?

Schoenfeld: “The market there is mostly foreign workers. Dubai and Abu Dhabi are full of westerners who come to work, make a fortune and don’t pay tax on their income.”

Georgia on their minds

The global Groupon group went public on Nasdaq four years ago, floating at a valuation of almost $13 billion. Since then, the company has been occupied mainly with disappointing its investors, en route to its present value of $1.8 billion. Its revenues have run at $700-750 million in each of the last three quarters, according to its financial statements, but it built up an operating loss of $75 million in those three quarters. Eight years after its establishment, its sales costs still shift it into the red.

The company won’t divulge the profit or losses from its Israeli activity, and its commission on each deal is different. All Schoenfeld will say is, “To date, we have worked with 10,000 merchants in Israel. At any given moment we have 2,000 deals in the air and have sold 8 million coupons in five years. It works out that we sell thousands of coupons a day.”

He also argues that Groupon is a young company and it’s normal for young companies to invest resources in growth: “Take for instance Amazon in its early years, or even Airbnb or Uber.”

What commission do you charge businesses?

Schoenfeld: “We charge a variable percent of the deal – it depends on the business and its category. If it’s a strong business that will help us attract surfers, we’ll charge less. If it’s a category where margins are wider, we’ll charge more. The margin restaurants make in Israel is much smaller than in Europe and accordingly, our margin will be lower than in Europe.”

Yet, Schoenfeld says, Groupon Israel’s most profitable market segment is restaurants. ‘More than half the deals we sell on Groupon are restaurants. Beauty however is more profitable.”

Why are restaurants so popular in Israel?

Schoenfeld: “First of all, because of the high prices restaurants in Israel charge. So Israelis look for bargains. Secondly, Israelis are attracted to the good restaurants and we work with very good ones.”

There are reports that buying by coupons on websites is down.

Schoenfeld: “A survey conducted for us in August shows that Groupon’s market share is 80%. When the market leader is growing, the whole market is growing, so I can definitely assume that the whole market is trending up, though I’m not monitored by rating companies. In recent years though, the market has undergone consolidation because small players were struggling to survive I don’t rule out companies that didn’t reach critical mass suffered from declining revenues.”

Changing habits

Looking at other countries where you work, how do you explain the high prices of Israeli restaurants – yet the fact that they earn less?

Schoenfeld: “It’s because of the cost of raw materials, of kashrut and of marketplace, which aren’t cheap in Israel. I’m also responsible for Poland and the UAE and I see the differences in manpower costs. In the UAE, manpower costs are marginal. There’s a whole segment of people living in modern bondage. And there are no taxes there at all.”

Have Israelis been changing their online shopping habits?

Schoenfeld: “Tourism has been growing nicely in recent years. The Israeli consumer is changing and is starting to buy directly online. Our average discount is 20% to 25% and in order to make more aggressive offers, we changed the destinations Israelis would typically go to, and began promoting places like Georgia, Warsaw and Sicily. Another expensive area in Israel that’s ripe for change is concerts. A show by a Mizrahi singer can cost 250 shekels and once you add parking and drinks, you’re paying 500 to 600 for the evening.”

Why is it so expensive?

Schoenfeld: “Israeli producers have a lot of marketing and branding expenses.”

Have you noticed other trends among Israeli consumers?

Schoenfeld: “In the last year or two, they’ve connected to an American trend which is to stampede online shopping days, like Black Friday or Cyber Monday, or the Chinese Singles Day. Two years ago, Israelis weren’t aware of these. This year, Black Friday racked up record sales.. our activity doubled.”

What things won’t people buy through Groupon?

Keller: “They’ll buy everything. Tablets, vacations, anything. Except for one thing. Gifts.”

Animals?

Schoenfeld: “There are pet products. Some of our VPs object to actually selling animals.”

Afternoon activities for kids?

Schoenfeld: “It sells. It’s hard to think of anything we haven’t tried. Three years ago we uploaded an offer for a hydroclinic, a sort of enema. The day we uploaded the lead, demand went wild. Dating events sell well. Groupon U.S. recently raised a deal together with the Israeli tourism ministry to bring American tourists to Israel, and it was a huge success. Now we’re planning to bring Russian tourists to Israel.”

Do you operate differently in  the Arab or ultra-Orthodox sectors?

Schoenfeld: “The ultra-Orthodox and Arabs interest us. We don’t market specifically to the ultra-Orthodox market, but we have relevant deals for them, such as meals in kosher restaurants, or bulk sales.”

Keller: “We don’t address the Arab community specifically, but we know they’re a great audience. They like gadgets and overseas soccer-oriented trips.”

What do you buy on Groupon?

“Meals at restaurants,” Schoenfeld answers. “I recently bought running shoes, and I went with the family to the Carpathians.