In the most significant daily deal news for the last 6 months, TradeMe have announced that they were selling their group buying site TreatMe.co.nz. Launched in April 2011, the site has saved Kiwis around $30-40 million by offering daily deals and vouchers in the past 2 years. Sales are estimated to be about 75% less than this amount over the 2 year period.
The site is being sold to a group of investors lead by James MacAvoy who has run the site since launch. MacAvoy was also part of the team that started DVD rentals business Fatso, which is now owned by a range of investors including Stephen Tindall and SKY TV.
The thing with group buying sites is that they are typically low margin businesses. They operate on margins of 20-30% and have a high staff cost. As reported in the 2012 TradeMe annual report, TreatMe was expected to grow a lot faster than it has. The daily deals business is a very competitve one, not helped by GrabOne having a reported 75% of the market.
The TradeMe group has always been a profitable one, and it seems the lower margins from the deals site may have been dragging down overall ROI rates for the publicly listed company. Interestingly GrabOne's profit in the 2012 year was $1.2 million, on a turnover of over $60 million giving a 2.12% profit - small margins at the end of the day.
I am not surprised to see TradeMe cutting ties, because the site wasn't the core type of business that TradeMe usually runs. Sure it's online, but the daily vouchers model relies on dealing with other companies to partner and provide deals. TradeMe has always run it's own house and been in control, creating it's own content and waiting for customers to come to it.
Having to go out and drum up business each day is a very labour intensive task and involves a large outbound sales team. There are lots of moving parts with a daily deals business. Going private will allow TreatMe freedom and less pressure to met short term targets, than being part of a publically listed company. TreatMe will benefit from the large database they have acquired via cross marketing to TradeMe members.
TreatMe is not the first deals site to be sold in the market. Yazoom and Groupy, sold to the DailyDo group last year. Groupy also sold previously to the Yellow Pages Group. Torpedo7 (owners of top daily deal products site 1day.co.nz) sold a 14% stake in their business to an Australian publicly listed company in 2012.