The bid to contain the coronavirus pandemic has confined millions of people across Southeast Asia to their homes, and turned them to food delivery services. And more players are seeking to capitalise on that opportunity and piling into the sector, giving the incumbent delivery services a run for their money.
Lalamove on Tuesday announced it will offer a food delivery service at zero commission for food merchants in Singapore.
The logistics provider, which focused on last-mile deliveries of items – starting from documents to IKEA sofas – forayed into the space just days after more than 4,000 eateries, owners, and consumers in Singapore signed a petition on Change.org., calling for lower commissions on food delivery platforms.
Some have even threatened to boycott the delivery platforms, which include Grab, FoodPanda, and Deliveroo, and buy food directly from the vendors.
Lalamove’s readiness to mount a challenge against the existing food delivery players is not that surprising, given that it boasts some 2 million drivers spread across its markets (including Latin America and China) to deliver a range of items using bikes, vans, lorries and trucks to its 15 million registered customers, across the region.
As cities across Southeast Asia are in lockdown to help contain the highly-infectious COVID-19 pandemic, food delivery is perhaps one of the very few industries that saw a surge in demand, when most economic activities are paralysed by the outbreak.
However, the sector isn’t quite a cakewalk, even for dominant platforms such as Grab and Gojek.
Apart from new entrants such as Lalamove offering lower or zero commissions for merchants, existing food delivery platforms compete with restaurant owners setting up their own digital platforms that allow direct orders. Yet other owners are said to be working with taxi drivers, who would otherwise be languishing without commuters.
Earlier this month, a page on Singapore-focused website TheSmartLocal listed 39 food delivery options that were providing discounts and free delivery. Other volunteers formed a community to “save our hawkers” and started a website called sgdabao.com.
Separately, Singapore-headquartered DBS Bank launched an initiative to pool together food and beverage establishments to set up online operations, and match them with its own logistics partner.
Amid these challenges, Grab is ramping up its food delivery business. The company said its GrabFood unit in Singapore saw a 20 per cent increase in deliveries in the early part of 2020, even before the city-state imposed workplace and school closures.
However, food delivery is yet to be profitable for Grab. Further, in this competitive climate, higher volumes could mean more losses per delivery, just to maintain market share.
In response to the petitions filed by Singapore-based restaurants, GrabFood, foodpanda and Deliveroo said their merchant commission rates are justified because they ensure that delivery riders are fairly paid and the cost of service is covered.
GrabFood further explained that not all commissions are earned by the company. A portion goes towards incentives and insurance for drivers, advertising for merchants, fleet management, and customer support, although the company did not provide specifics.
Such explanations would nevertheless be unheeded by F&B owners, who already have to deal with high fixed costs and decline in business owing to the closures.
Malaysia sector fragmented
In Malaysia, however, the incumbents foodpanda and GrabFood have yet to encounter significant opposition, even as they charge commission rates of 25% to 35% for their services. That’s high, when compared with the smaller platforms such as Runningman.
Consumers are incentivised by the promotions and discounts provided by delivery platforms in a bid to gain market share. “With the promotions and vouchers, the price paid could be lower if I ordered delivery, rather than going to dine at restaurants,” said one frequent customer in Kuala Lumpur, Maxine Yong.
While there are some complaints amongst merchants about commission fees, most consider the delivery platforms as a valuable partner.
“I think at times like this, I’m just grateful that there are delivery services to let my customers enjoy their meal at a minimal delivery fee instead of us passing down a heavy delivery fee to the consumers,” My Burgerlab co-founder Teo Wee Kiat told DealStreetAsia. The local burger chain is on GrabFood and Foodpanda, though Teo does deliver ‘burger kits’ on his own. “Imagine if delivery providers are not around, we would probably be ‘dead’ sooner.”
Meanwhile, bubble tea shop owner Ellen Ng said sales have doubled since the partial lockdown began in Malaysia. “For me, the commission charged is okay,” she shared. But she does think delivery apps should cap commissions for merchants who sell products at higher price points.
Nevertheless, F&B platforms have been adjusting their services to compete with the larger players.
For instance, StoreHub, which supplies Point-of-Sale systems for retailers, launched its food delivery feature after Malaysia implemented the Movement Control Order. Instead of the 35% fee on every transaction typically charged by other 3rd-party food delivery marketplace apps, StoreHub’s fee is only 2%.
It has also partnered with GoGet, a platform connecting part timers, and a consortium of on-demand logistics providers for its food delivery services.
Meanwhile, given that restaurant operators tend to have their own vehicles, some stall operators use WhatsApp to consolidate orders and deliver the food themselves. If the delivery locations are too far out, they would also use third party partners such as Lalamove and GrabExpress.
And, to support the smaller players, Maybank, Malaysia’s largest lender by assets, has launched Sama-Sama Loka, an advertising platform for local hawkers, grocers and businesses. The bank will also be providing free deliveries of up to 10km.
Consolidation post lockdown?
Following Lalamove’s announcement, other logistics providers in the region could follow suit. One such player could be Bungkusit in Malaysia, which currently provides cheaper delivery service than Grab.
Bungkusit is not new to food delivery. In Malaysia, it has already catered to underserved merchants prior to Malaysia’s partial lockdown (MCO). It has since added delivery of beauty and medical products.
But while the barriers to entry into the food delivery sector are relatively low, the lack of a clear profitability route could also deter more entrants into the space. And as competition eats away at profits, market consolidation would be on the cards.
Whatever the case, last year’s mega deal involving Germany’s Delivery Hero’s $4 billion purchase of South Korea’s top food delivery app owner Woowa Brothers might have whetted appetites for more.
Yimie Yong contributed to reporting from Kuala Lumpur.