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Soaring group buying sites tipped for bumpy landing

Monday, 18 July 2011 | By Michelle Hammond
Australian consumers’ spend on group buying sites soared by 72% during the June quarter, according to a Telsyte report, but experts say sites will start to fold as the market becomes more crowded.


The 51 sites tracked by Telsyte generated retail sales of $123.9 million in the June quarter, up 72% from $71.8 million in the previous three months.


Telsyte senior research manager Sam Yip predicts the market will be turning over $400 million by the end of 2011, claiming Australian consumers are “spoilt for choice”.


“The market has gone from publishing around 800 deals a month at the end of 2010 to currently around 4,000 deals a month,” Yip says.


Most of the deals offered through the sites are redeemed using vouchers. Yip says more than 2.6 million vouchers were sold in the June quarter, and monthly sales would climb from 900,000 vouchers in June to more than one million this month.


Health and beauty products lead the growth of the group buying market, in which people subscribe to a site and receive a daily email offering discounts from various businesses such as restaurants, hotels and beauty salons.


The offers can be redeemed when a certain number of people take them up.


Although more than 50 group buying sites have been launched over the past 18 months, only a handful are generating retail sales of more than $1 million a month.


According to Yip, the group buying market is tipped to undergo radical consolidation over the next two years, putting many smaller players at risk.


Yip says as the market becomes more crowded, smaller sites will either merge or fold as their much larger counterparts move into niche areas in a bid to win more customers.


Scoopon, founded by Melbourne brothers Hezi and Gabby Leibovich, was the market leader in the June quarter, capturing 20.5% of revenue.


The group buying giant, currently embroiled in a legal battle with US-based rival Groupon, recently announced its plans to offer Australia’s first ever group buying deal on airfares.


Scoopon is giving consumers the opportunity to buy direct return flights from Melbourne to Thailand at almost 75% off, confirming the company’s intention to widen its offering by tapping to lucrative niches.


According to Scoopon general manager Jon Beros, extending into new categories and larger value purchases allows the company to reach new customer segments that traditionally may not have shopped on group buying sites.


Beros said in a statement the airline sector is one of many new product categories the company will be exploring as it looks to build upon its leadership position in the market, suggesting smaller players – who have carved a niche in the industry – are at risk.


“I don’t think everyone’s going to survive. Some will try to specialise in certain niche areas but there’ll be a lot of consolidation and some will fall out of the market as it gets harder to source the deals and to have a point of difference,” he said.


Scoopon already appears to be steamrolling the competition, as seen earlier this month by its debacle with niche group buying site Bellabuy, formerly Beautyscoop.


One of the co-founders told StartupSmart the business was forced to change its name after Scoopon accused the start-up of trademark infringement based on the word “scoop” in its business name.