Group buying turnaround: Sales reach $500 million in 2012 despite consolidation

The group buying industry could be on the verge of a turnaround, with new figures from research firm Telsyte showing the industry earned more than $500 million in sales during 2012 – up by 1.4% from the previous year.

Despite continued consolidation, with smaller players continuing to fall away, research analyst Sam Yip says the possibility of the industry’s bubble “bursting” are long past – the industry is just getting smarter.

“Three years later, the market is still growing,” he says. “To grow even with more consolidation shows the big players and drivers of the market are in a strong position.”

The Australian group buying industry exploded in 2010, with a number of major players. But since then, the industry has undergone a period of serious consolidation, along with backlash from consumers – and businesses – who feel the market has let them down.

Last year there were about 80 group buying sites in operation. Today there are just 30.

Last year SmartCompany revealed what can happen when group buying goes wrong, after a business which offered a KitchenAid mixer deal disappeared from the internet without any notice.

The new figures from Telsyte show the industry earned $504 million in sales, up by 1.4% from 2011. Once again, the top five sites dominated – Groupon and Scoopon controlled the top of the market, followed by LivingSocial, Cudo and OurDeal.

Altogether the combined sales from the sites grew 9% year-on-year in 2012. Groupon and Scoopon alone have seen over 40% growth.

More importantly, Yip says, the industry recorded two quarters of consecutive growth following three consecutive quarters of decline. Overall $130 million was spent in group buying in the fourth quarter.

However, the consolidation will continue as smaller players drop away.

“Further consolidation is coming,” says Yip. “We expect the market to evolve – and that evolution is around categories.”

Yip says as group buying has evolved from selling “deals” to products, there will be further evolution as businesses sell subscription products, such as magazines, along with subscriptions for other types of services.

This is how small businesses tired of the group buying sector may return, he says. Especially as customer complaints have flatlined – more businesses are starting to understand how to work with customers.

“Smaller players will start using it in a smarter way, rather than just for sales or marketing. They’ll be using it as a yield management tool to work out how to grow during leaner times.”

The fastest rising parts of the market include retail product sales and local deals. But Yip says the market is again expected to expand, with bigger brands investigating group buying as a way to boost sales.

Bigger brands such as Hungry Jack’s have already explored using group buying as both a marketing tool and a revenue booster.

The group buying industry exploded in 2010, but last year was volatile for the industry. The founders of Spreets left the company, and rumours of poor performance filtered through the industry. Billy Tucker, the chief executive of Cudo, also left that business.

LivingSocial also cut local jobs as the parent company underwent a restructure. The disappearance of SoSharp also brought into focus the volatile nature of group buying – the business simply disappeared from the internet without a trace. SmartCompany investigated the incident and spoke with the company’s chief executive about what happened.