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Commentary: Getting your food order delivered should be straightforward so why isn’t it?

The coronavirus may have turbocharged delivery volumes. But food delivery apps have a way more complex business model than this first appears, says Li Jianggan.

Commentary: Getting your food order delivered should be straightforward so why isn’t it?

Food delivery companies foodpanda (left) and Deliveroo. (Photos: foodpanda, Tang See Kit)

SINGAPORE: As F&B outlets suspend dine-in and rely on deliveries and takeaways, food delivery platforms and the commissions they earn have come under the spotlight.

Some eateries say they are steep, even excessive or predatory. Commentators have questioned the sustainability of the food delivery model.

But the reality that underpins this complex machinery is more nuanced and challenging.


We are far from the narrative that food delivery has skyrocketed and platforms are making huge profits. The impact of the pandemic on Singapore’s F&B business has multiple facets.   

While delivery as a percentage of business has gone up significantly, most eateries have seen business plummet as dining-in ceased. Restaurants have become sensitive to delivery commissions.

Office lunches, which previously formed the bulk of orders, have been replaced with customers spread out in homes across the island, making smaller orders each time, requiring delivery operations to have more redundancies to achieve the same service levels.

READ: Any legislation to cap commission fees of delivery apps has to be ‘carefully’ considered: Chee Hong Tat

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Food delivery apps face operational complexities that translate into costs.

Compared to ride-hailing, which connects drivers with passengers, food delivery is a three-sided platform, with restaurants, customers and deliverers. 

Platforms dispatch orders to both riders and restaurants. Riders travel to restaurants to pick up food and deliver to customers.

A foodpanda rider on an e-scooter. (File photo: TODAY)

The platform has to balance the needs of all three sides. Cutting commissions from eateries will mean either raising delivery fees to customers or lowering payments to riders. 

Getting your order to you at breakneck speed also requires restaurants to start preparing once an order comes in, so a rider does not waste their time waiting at the restaurant.

Riders often use motorbikes, bicycles or personal mobility devices – and may meet with bigger safety concerns than cars used in ride hailing.

If the restaurant is in a mall and the customer is in a high-rise, huge private condominium development that have security and parking regulations, additional time must be factored in.

Yet most customers do not plan their food delivery in advance, but order when they are hungry and impatient. 

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Product-wise, the system counts on many potential points of failure that cannot slip up: From payments to restaurant acquisition, updating of detailed information regarding menus and item availability, not to mention marketing costs. 

These are the fixed costs borne by the platform merchants and consumers often do not think about. At the moment, commission from eateries is the main revenue source for most delivery apps.

The work to enable your order to reach you in a matter of minutes is a ticking clock of myriad moving parts. This is why many platforms fail. Beyond cost structures, a successful food delivery app must mobilise and orchestrate a smooth execution for every order, lest frustration leads consumers to switch loyalties. 


But the good news is food delivery models can work.

File photo of a GrabFood delivery. (Photo: Grab)

Hong Kong-listed and China-focused Meituan Dianping, which achieved profitability in 2019, has delivered billions of orders since it began.

Meituan achieved profitability at very low commission levels, averaging 12.6 per cent throughout 2018 and 2019, lower than what platforms in Singapore charge.

Meanwhile, Meituan’s gross margins in the food delivery have increased drastically from -7.7 per cent in 2016 to 13.8 per cent in 2018 and 18.7 per cent in 2019, as the tech giant succeeds in achieving cost efficiency in operations after aggressive customer and merchant acquisition and the use of tech to drive costs down.

The firm has also diversified revenue streams, in business-to-business logistics in the F&B sector and financing. Meituan has announced an intention to increased advertising by merchants.

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Starting as a Groupon-like service, Meituan achieved hardwon success only after pivoting many times. It faced direct competition from well-funded giants Baidu and Alibaba. People doubted its viability until recently.


The question is whether Meituan’s success can be replicated in Singapore and Southeast Asia in general.

While labour costs are higher and availability limited in Singapore, the average order size is much higher than Meituan’s 52 yuan (about S$10).

Southeast Asia in general resembles China in earlier stages of tech development, with abundance of labour at low cost, fast rising consumer spending, and rapidly improving mobile, payment and logistics infrastructure.

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A, Meituan-Dianping deliverer in Beijing. (Photo: AFP/GREG BAKER) Although it has hundreds of millions of users, Meituan-Dianping is loss-making and has said that it cannot guarantee profitability AFP/GREG BAKER

Southeast Asia is extremely diverse in terms of legislation, consumer habits, labour conditions, market dynamics, payment infrastructure and even tax schemes. These make the region more complex than US and China where a single market, the use of a single language and similar local regulations provide fewer hurdles for food delivery firms to clear.

At the same time, however, Southeast Asia has strong fundamentals that attract investments – in terms of growth prospects, a young, rising middle class and growing consumption – that give investors confidence a regional play can succeed.

Food delivery firms know these challenges surrounding diverse markets can be overcome. Grab, Sea Group and Ninja Van are all taking a ground-up approach to localise the front-end of the product, ensure regulatory compliance and iron out payments and partnerships.

At their platform back-end, they use the same tech system, dispatching algorithm, operations framework and branding, creating economies of scale. 

Food delivery platforms in the region are nowhere near Meituan, which not only has market dominance and scale, but also product diversification. Meituan has optimised its dispatching system so much that on average, an order, together with the route information, reaches the rider in under a second after the consumer places it.

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Meituan’s other key strategy driver is its portfolio of ancillary services, which offer customers more value and spread out the customer acquisition and service costs.

Meituan’s investment in shared bikes, power banks, as well as Grab’s super app strategy with ride-hailing and other services are both right moves that keep them more efficient than pure food delivery companies. 


Eateries have choice during this coronavirus outbreak. From Oddle to Chope, restaurants have alternatives to the big players GrabFood and foodpanda, which offer lower commission fees.

The challenge is finding the right balance between cost, convenience and customer acquisition. Restaurant owners need to determine what trade-off makes sense for them and how much can they shift operations to be geared towards delivery, since there will be safe-distancing restrictions even after dining-in is allowed in Singapore’s transition to Phase 2 of this new normal.

A friend who runs a Sichuan restaurant in Singapore has seen business thriving under the circuit breaker. Even with zero dine-in and additional helping hands hired, he’s seen demand surge to a point where the wait takes two hours.

People wearing face masks walk past a closed retail mall along the Orchard Road shopping belt in Singapore on May 6, 2020. (Photo: AFP/Roslan Rahman)

READ: Commentary: When economies reopen for business but families are reluctant to spend

The secret? When he first launched the restaurant 10 years ago, he quickly realised the location was a mistake – it had very low foot traffic. To keep the business afloat, he was forced to develop a comprehensive set of channels including branding, social media, delivery and loyalty programmes. 

Now most of his orders come from recurring customers, who also refer new clients to him.

That’s a lesson for F&B owners who have grown dependent on one type of customer acquisition: Think about the long term and adapt.

Sooner or later, people will step out and enjoy dine-in services again.

We do not know yet how consumer behaviour will change, but initial numbers from China suggest both dine-in and food delivery will grow. It turns out busy Asian urbanites are still too busy to cook.

READ: Commentary: Life in China after COVID-19 lockdown gives normal new meaning

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Li Jianggan is founder and CEO of Momentum Works, a Singapore-based venture outfit. He was also previously MD Singapore of Foodpanda, co-founder and Regional MD of Easy Taxi.

Source: CNA/sl


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