Last week we reported on the shady-seeming deal service Mobile Spinach, which pretends to offer "exclusive" deals at restaurants and tattoo parlors and the like, except the problem is that the businesses don't seem to know anything about these deals they're selling. As Grub Street has dug further into the matter, a portrait is emerging of a start-up venture, giddily funded in the headiest days of Groupon mania, whose business plan appears to have shifted from ill-conceived and arguably desperate, to something more scammy and potentially illegal.
Mobile Spinach got off the ground in 2009 with the concept of offering Groupon-like deals that could be spontaneously claimed and used by consumers using smartphones, making printed coupons unnecessary. Over the last couple of years, the San Mateobased company has actively approached a number of online San Francisco publications with offers of revenue-generating ad partnerships and tailor-made deals.
In April of this year, the company raised its first $1 million in venture-capital funding, based largely, it seems, on claims that it now has "exclusive relationships with thousands of merchants in 611 cities in the USA." But as Grub Street discovered last week, many of these "relationships" appear to be fabricated, and the site has built its platform on the premise that if they create deals that prove popular with consumers, restaurants, and other small businesses will gladly accept these deals and welcome the opportunity to do business with this company that was selling something on their behalf, without their knowledge.
The company, however, appears to have revised their tactic in the last year from retroactively seeking approval from businesses, to instead trying to convince them that they have, in fact, already accepted the company's terms. (Note: Mobile Spinach has so far neglected to answer Grub Street's questions in connection with this story.) Restaurants like Mama's, Delfina, and Boulevard, who were featured on the site without their knowledge, told Grub Street that they were were all told by reps at Mobile Spinach that they must have accepted the company's terms via e-mail without realizing it.
This seems to run contrary to an earlier published explanation of their methods, at the bottom of this post from October 2010 on 7x7 pertaining to an event in which they were partnered with Mobile Spinach:
Heres how you get the deals on your smart phone and use them at any of the establishments above!
1. Go to m.mobilespinach.com on your iPhone, iPad or Android browser and find the deals for Paragon, MoMos, (Under dining) and 21st Amendment (Under nightlife). Then, click buy & enter your credit card information.. Your credit card wont be charged yet.
2. Give us 24 to 48 hours to OK the deal with the merchant.
3. Once the merchant agrees to this special deal, youll get an email confirming that your purchase got approved.
4. Well charge your card and put a voucher into your mobile wallet.
5. Use your voucher just like a gift card. Redeem it by pressing the redeem button at the cash register of the store.
Grub Street contacted a marketing rep for Paragon who says that the AT Parkadjacent restaurant has maintained a corporate policy of not working with any deal sites, and furthermore they would have never run a promotion like this during baseball season because they're too busy as it is.
But as of last fall, Mobile Spinach was at least being transparent about the whole creating-deals-on-spec thing, and that may not have been working out so well. Perhaps they had too many restaurants balking at this idea of accepting a deal they had no say in after the coupons had already been sold even though they say that no one's credit cards got charged. That thing about not charging cards also appears to be false, at least in some cases, as a customer at a downtown restaurant in November 2010 wrote in to tell us that he redeemed a deal from Mobile Spinach, his credit card was charged, and the restaurant said they'd never heard of such a thing and told the customer to take the issue up with the company. The customer then e-mailed Mobile Spinach CEO John VItti about a refund, and Vitti complied, claiming "it was a 'bug in the system' that didn't let the restaurant know."
Currently, the Merchant page on the site lays out their methods more vaguely: "1. We create and present discounted gift cards to our members. 2. Our members (your new customers) buy the digital gift card created for you. 3. Once the customer redeems the gift card, we pay you via PayPal." We note that there's no talk here of the 24 to 48 hours to get each deal approved.
Under some printed terms with merchants, they also demand artwork and graphic assets from each business they create deals for; however, they've now just turned to Yelpers for that, lifting dish photos from there, with sometimes blurry results. (The Local Activity Feed on that Merchant link above also shows new deals being "approved" every few seconds all over the country.) The site claims to be doing business with 450 businesses in San Francisco alone, and we question whether they'd even have the man power to make all the phone calls, get photographic assets, and cut all these retroactive deals if all this were true.
Last week's spate of high-profile restaurants on the site (including Delfina, Gary Danko, and Cotogna) would seem to point to a desire on the part of this upstart deal site to appear as though it has greater cachet and "exclusivity" than it actually does. It strains credulity, of course, that any of these restaurants would agree to such deals given that they aren't hurting for business and likely would see deals like this as tarnishing to their image. All of the above-named eateries have since had themselves removed from the site. Furthermore, Grub Street contacted one of the non-restaurant merchants currently featured, Seventh Son Tattoo, and a rep there said, "That doesn't sound like the kind of thing we'd participate in."
An amusing side note: Two of the deals currently featured, one in S.F. and one in Philadelphia, are for restaurants that no longer exist. This restaurant, 21st Street Gourmet, was replaced by Pure Fare back in April, and Capri Ristorante in S.F. closed in June. Guess no one's going to be approving those deals!
Mobile Spinach also went about trying to partner with multiple publications around town and promote themselves through revenue-sharing partnerships. One such promotion, through the blog Muni Diaries, intended to send deals to subscribers' phones that were customized to their exact location while commuting for instance, they had several deals made for a bus line that passes through the financial district, including a half-off deal at Wayfare Tavern. When we asked owner Tyler Florence about Mobile Spinach, he told us, "We do not work with them or know anything about it."
Another local publication, SF Appeal, was approached numerous times in 2010 by the Mobile Spinach sales team, but editor Eve Batey declined to partner with them after feeling like their tactics were too aggressive and potentially not above-board. "Warning bells went off for me," says Batey, who shared some e-mails that were sent to her in the last year, including one announcing "Discount for Life" deals, "where consumers will be able to get offers (such as 2 dollars off burritos at Pancho Villa Taqueria in the Mission) that they can literally use every day for the rest of their lives."
So, is what they're doing just the desperate scrambling of a company that got into the flash-deal business too late, and with a poorly conceived revenue model? Or is it actually illegal? Restaurants get approached by companies like this constantly, and it almost seems inevitable that a company would emerge that pushes the limits of online deal-making to an extreme. But if most of their revenue comes from deals that don't technically exist, we feel like this bubble's got to burst pretty soon.