A local newspaper in China recently accused Meituan, the country’s largest daily deals site, of fraudulently inflating its transaction volume figure by a factor of three. That has prompted Meituan’s management to refute the accusation, and reveal that the website handled 360 million RMB (US$56.54) in orders last month, May, alone.
The newspaper had said that Meituan was directing employees and friends and families of its merchants to place orders which they’d later cancel after the deal had expired and thereby get issued a refund. This, the report alleged, was trumping up monthly sales transactions from a true 100 million up to 300 million RMB.
Meituan’s VP, Wang Huiwen, told Chinese media that all’s well at the group buy market leader, despite the fact that it has ceased city-by-city expansion for the time being until it becomes profitable. The figures he revealed give an interesting glimpse into life in the cut-throat, low-margins business. He added that in May, the company refunded 38.47 million RMB ($6.04 million) to customers who had failed to use their purchased deals, representing nearly 10 percent of its sales. With all that factored in, Meituan’s gross profit margin is between 8 and 10 percent.
It’s plausible that some smaller companies in this group buy space struggle to survive on even slimmer profit margins. That explains why hundreds of such sites are shutting down each month.
[Source: Marbridge Consulting]