Group buying industry arrests decline, but market still undergoing massive change

The group buying industry has arrested the decline seen in the previous few quarters, but experts still say there will be more consolidation as smaller sites make way for larger players.

But industry insiders are now saying some of the bigger companies backed by media giants are doing themselves in by focusing on low-value products and marketing without a return.

According to new figures from Telsyte, the $500 million industry recorded flat revenue growth in the past three months. That’s an improvement, says senior research manager Sam Yip, who notes the past two quarters recorded single-digit declines.

“What we have now is the large sites are continuing to get bigger, and then at the very small end, those sites have dropped out.”

“But consumers are still engaged in the category and the model.”

Home-grown Scoopon, part of the Catch of the Day group, and international giant Groupon control 50% of the market. Spreets, Nine-backed Cudo and Ten’s OurDeal control another 25% together.

LivingSocial controls another 14%.

Last year there were 100 companies in the sector, but this has been reduced to 40 and smaller players are still dropping out. The industry simply had too many companies to compete. Those that were able to build scale have survived.

While the industry in Australia is worth $500 million, insiders claim profitability is elusive. Scoopon’s executive general manager, Jared Baker, claims while his own company is “massively profitable”, others are struggling.

“In the last year, where others have invested in marketing, we’ve invested in our customer care.”

It’s the media companies that are seeing the biggest financial problems. Yahoo! said earlier this year it wouldn’t pay out performance payments to Spreets, and chief executive Stuart Sayers told The Australian Financial Review this morning the industry remains “challenging”.

“There’s no question volumes have come back from the initial launch bubble.”

Former Cudo chief executive Billy Tucker also told the publication it was the “right time” for him to leave, although it is understood the business is performing well and is profitable.

Baker says he questions whether competitors have maintained healthy margins.

“Those businesses cannot have a healthy bottom line if you’re throwing that much money at marketing. Merchants just don’t want to deal with them anymore.”

That having been said, Yip says customers are happy to spend money. The average price of all deals has increased to $120, and recent deals in the travel sector have exceeded $6,000.

“People aren’t getting sick of them; it’s just the natural evolution of the online shopping behaviour. It’s not going to die, and it’s not going to fade out, it’s just going to change.”

“All this is just a sales channel. So we’re going to see changes around how that is distributed.”