Group buying industry continues to tumble from peak, revenue down 5% in second quarter

The group buying market is continuing to decline. New figures from research group Telsyte show revenue among Australian group buying sites declined 5% to just $117 million in the second quarter of the year.

The decline is no surprise. Group buying has continued to fall from its massive peak for the past year, with market leaders continuing to suffer the consequences – Groupon’s shares have lost 90% of their value since listing last December.

Telsyte senior research manager Sam Yip says while the industry will never disappear, it’s simply beginning to stabilise.

“We hit a massive peak in the third quarter last year, and now the market has stabilised. I’d say the first wave of growth has ended, and we’re setting up for the second wave.”

Apart from the continuing trend of group buying companies moving away from broad, generic deals into more niche, focused products, the research also shows sites are moving towards national deals, and products instead of services.

In the fourth quarter of 2010, only 8% of deals were available nationwide, but by the first quarter of this year, national deals were 51% of all offers.

“We’re expecting the industry to reach $600 million by this year, and that’s up 20% from last year,” Yip says.

“You can see consumer spending in this category is quite strong. The demand is there, the challenge is just about supply.”

Certainly the group buying industry has been undergoing a strong transformation.

The decline of Groupon’s shares in the United States has come alongside rising fears about the viability of the industry.

Sites are now moving away from health and beauty products into more product-based deals. Some large partnerships with retailers have been an enormous success, and Yip says these can be expected in the lead up to Christmas – and even the release of the next iPhone.

“One example is the expected new iPhone and mini iPad around September and October. Whenever these deals come up people spend more money online, and that would mean a lot of blended deals like accessory packs.”

More of these can also be expected in the lead up to Christmas.

The industry remains dominated by major players with virtually no middle tier. Groupon, Scoopon, LivingSocial, Cudo, Spreets, Deals.com.au, Ourdeal and Ouffer all make up 90% of total revenue – although it is understood not all of these sites are profitable.

Deals.com.au and Ouffer merged earlier this year.

Yip says as the industry stabilises, these sites will need to adjust to deals without margins between 30-50%.

“There will need to be a look at how businesses structure their deals with merchants in terms of sustainability.”

“But it’s not going to die.”