Small group buying sites told to “hold on and sit tight”

Small players in the Australian group buying market need to “hold on and sit tight”, an expert says, after a report revealed consumer spending has fallen for the third consecutive quarter.

According to figures released by Telsyte, consumer spending on Australian group buying sites fell 5% to $117 million in the June quarter.

This follows a 14% fall for the March quarter and a 10% fall in the December quarter. However, Telsyte is still forecasting consumer spending in the sector to top a record $600 million for 2012.

“What we’re seeing is the industry becoming more sustainable compared to the rate of growth in previous quarters,” Telsyte senior research manager Sam Yip told StartupSmart.

“If you look at Q3 and Q4 of 2011, there were large spikes. We also saw some large deals and an industry shift to product deals.”

Yip says the newfound focus on product deals means service deals may have been neglected, which could have contributed to the dip in sales.

“You can’t forget about service deals – the industry was built upon local deals,” he says.

“For the first time in two years, we’ve seen local deals increase their share… Industry is responding to the needs of local merchants and also consumers’ demand for local deals.”

Yip says it’s important to remember the group buying market is still very young – it has grown from nothing to half a billion dollars in just two years.

However, the sector is dominated by eight major sites, which account for 90% of the industry’s revenue.

“We don’t expect to see much more consolidation happening [among] those top eight sites. It’s not a ‘winner takes all’ industry,” Yip says.

“With group buying, there is an element of discovery. If there’s only one site, there’s not much to discover. It’s about tapping into that mentality of searching and discovering a good deal.”

Yip says while there are still opportunities for small players, it’s becoming increasingly difficult.

“Small players need to be realistic about what they want to make and how sustainable it is for them. How will they fare against the marketing [capacity] of the eight?” he says.

“I don’t think there’s any more space out there to be a generic site. You need to be very targeted when it comes to the offers you’re putting out there.”

“A lot of [the small players] have been able to get some runs on the board around product sales but that’s becoming a more challenging environment.”

“Maybe look at the success of the large players and see what deals they’re finding success in and try and replicate it to get a piece of the action.”

“It’s a hard market to be in for small players. They really just need to hold on and sit tight.”