China's group buying sites mainly 'sinking ships', fighting for profits

China has more than 5,000 group buying sites, including one from Groupon

Nearly all of China's over 5,000 group buying sites will eventually go under as tough competition and diminishing cash reserves force them to fold, according to the CEOs of two leading group buying sites in the country.

"All of the Chinese group buying companies, none of them are profitable. Everyone is sort of like a sinking ship," said Du Yinan, the CEO of 24Quan, on Tuesday. "If no one reaches profitability by a certain time, everyone will die."

China's group buying market exploded last year, with many of the sites using a business model similar to that of Groupon in the U.S. The country now has 5,085 group buying sites, according to Tuan800.com, an Internet portal that aggregates Chinese group buying deals.

Business executives and analysts, however, expect the market will gradually be reduced to a few leading sites that are able to survive over the long-term.

Wang Xing, CEO of Chinese group buying site Meituan, echoed the view and believes 99.9 percent of all China's group buying sites will die out. "So 5,000 times 0.001 percent. That should be five. Five is enough for the China market," he said.

Wang and Du gave their views on the market while speaking at the TechCrunch Disrupt conference in Beijing. "We have a single digit margin, that's normal here," Wang said. "By the end of next year, we may be able to see it at 10 to 15 percent."

In the case of 24Quan, Du said his company expects to become profitable next month. "We are not seeing a lot of companies that can say that," he said, noting that 24Quan has become an important tool to help merchants market their brand.

Groupon has also entered China's group buying market, with a joint venture called GaoPeng.com that has grown in popularity. But in August the company's China business began laying off hundreds of employees, sparking criticism that GaoPeng had been mismanaged. GaoPeng posted a net loss of US$46.4 million for the past nine months, generating only $2.1 million in revenue, according to a regulatory filing by the company.

Du said a major concern is that one of China's top leading group buying sites will eventually implode, causing local merchants to draw back from partnering with such services. "There's a very realistic risk," Du said. "If they implode, a lot of vendors will be very frustrated."

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