Local group buying sites profitable despite claims industry is unsustainable

Local group buying and deals sites maintain they are profitable despite fears that the industry is unsustainable after Groupon revealed it had lost $US413 million in 2010 on the back of its aggressive expansion.

Catch of the Day, which recently accepted an $80 million investment from an assortment of backers including James Packer, has revealed its Scoopon group buying site is turning a profit, while Deals.com.au founder Adam Schwab also says his business is profitable.

Chief executive Gabi Leibovich confirmed this morning in the Australian FInancial Review the Catch of the Day group is turning over $20 million in EBITDA, although it did not reveal the profit in percentages for each divison of the company.

Sources within the industry say Spreets, which accepted investment from Yahoo last year, is also turning over nearly $2 million in profit. The company was contacted for comment this morning but no one was available.

Cudo chief executive Billy Tucker also says that “on a like for like basis, we’re profitable”, suggesting the local businesses have been able to penetrate the Australian market much easier than Groupon, trading under the StarDeals brand.

The take-up of group buying in Australia has also been pinned by some analysts on the rise of the frugal consumer. But Schwab says the success and profitability of local group buying businesses legitimises the industry.

“I think the main difference between a site like Catch of the Day and Groupon is that Catch of the Day is now four years old, and it takes a while to get that sort of clout. They’ve really grown organically, and where Scoopon is making a profit that’s not acquisitions.”

Fears over the sustainability of group buying have been swirling around the industry for more than a year now. Many merchants have complained they don’t actually make any money from the deals, while others have pointed that consumers aren’t saving much money in the first place.

However, Schwab says comments that group buying sites are unsustainable following Groupon’s revelation of multi-million dollar losses are in haste.

“We hope it’s sustainable because we’re profitable as well! But even when you look at Groupon, if they cut the tap off their acquisitions, they’re profitable too.”

“Some people say it’s not sustainable, and that’s wrong, but at the same time the people who claim there are rivers of gold here aren’t necessarily right either.”

Billy Tucker also says the ability of local businesses to turn profits is a testament to the smaller market – if they were expanding internationally as Groupon is doing, then profits would be much further away.

“There is no world here that companies are expanding into. Aggressive expansion is a big part of that, so it’s more an exception here. We’re very much focused on Australia and New Zealand.”

Last week Groupon admitted it was losing hundreds of millions of dollars to expand, and chief executive Andrew Mason said there would be more acquisitions to come. Tucker says coming into the Australian market late – and under a completely different brand – may have allowed the local businesses to get ahead.

“I think brand has something to do with it. Aussies love Australian businesses, and have a history of preferring Australian businesses… but at the same time I’m not sure how much Groupon’s lack of success here can be put down to branding.”