Group Buying Shake-Up Hits Qianpin 团购行业洗牌风潮袭击千品网

It may be a new year, but there’s nothing new about the latest development in the group buying space where an ongoing cleanup has claimed one of the biggest victims yet with reports of mass layoffs at a mid-sized player called Qianpin. This latest shake-up is part of an ongoing retrenchment that has now reached its late stages, and I do expect we’ll see 1 or 2 more major fireworks in the next 6 months before this long and painful consolidation wraps up around the middle of the year.

Let’s take a look at the latest news, which has media reporting that Qianpin recently laid off about half of its staff in a desperate move to conserve cash. (English article) The layoffs reportedly started in November last year, and have affected around 200 employees to date, or about 40 percent of the company’s workforce. Qianpin said most of the cutbacks have now been complete, and added that it looking for new investment.

As China’s seventh largest group buying site with about 2 percent of the market, Qianpin would be one of the largest players in recent months to undergo this kind of painful overhaul as it seeks to conserve cash and alter its business model to move away from reliance on group buying. The company is currently trying to transform itself into a local lifestyle services e-commerce site, mimicking similar moves by other group buying firms that are looking to move into more traditional e-commerce services as they seek to find sustainable business models.

News of Qianpin’s layoffs comes as new industry data shows the industry’s overhaul reached a peak in 2012. According to that data, China’s field of group buying sites dropped to 2,695 in 2012, down 26 percent from the 3,652 companies that were in business at the beginning of last year. (English article) While the overall number of companies dropped, actual group buying sales for the entire industry grew by 61 percent during the year, according to the report.

It’s interesting to note that the industry still looks quite fragmented despite the major clean-up. The largest player, Meituan, controls 13 percent of the market, making it the only company with more than 10 percent share. Meituan is followed by Gaopeng, LaShou, Dianping, Nuomi and 55tuan, each of which controls 5-7 percent of the market. After that, only Qianpin and 1 other company control more than 2 percent of the market, and everyone else has 1 percent or less.

With the industry still so fragmented, there’s clearly still room for quite a bit more consolidation. We saw Tencent-backed (HKEx: 700) Gaopeng emerge as a potential consolidator last year, when it merged with sister company FTuan to form a new company called GroupNet, and raised some cash for M&A. (previous post) But we have yet to hear the company announce any major purchases since then. Another major player named 24Quan also made headlines late last year when it was forced to close due to a dispute with its investors.

I’m a bit puzzled about why we haven’t seen any mergers yet between major players, with the exception of the FTuan-Gaopeng deal, which was brokered by Tencent which owned stakes in both companies. As I said previously, I do think that many of these companies are now standing on their last legs and the consolidation now taking place should wrap up by the middle of this year. As that time draws closer, look for 1 or 2 potential mergers between some of the industry’s top players. If that doesn’t happen, look for at least 1 or 2 more closures of big-name companies before the industry finally returns to a more sustainable development path.

Bottom line: The current consolidation in the group buying sector should wrap up by the middle of this year, with 1 or 2 major mergers or closures likely before then.

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