SINGAPORE: The entry of a heavyweight player like Grab has turned up the heat in the local food delivery scene and some observers expect a tussle for market share to whip up a potential price war here.
GrabFood, the food delivery arm of Grab, was officially launched in Singapore on Monday (May 28). It replaces UberEats, which the ride-hailing giant had acquired when it took over Uber’s operations in Southeast Asia, and will go head-to-head with a slew of food delivery apps.
Among them include foodpanda and Deliveroo, which entered Singapore in 2012 and 2016, respectively.
While the growing food delivery scene has seen various new entrants over the years, Grab’s market stature and deep pockets “will definitely shake up” the industry, said associate professor Lawrence Loh from the National University of Singapore (NUS) Business School.
“It is coming from a totally different vantage point,” he explained. “Once Grab is in, the market’s competitive dynamics won’t be the same anymore.”
Echoing that, Mr Samuel Tan, a retail management expert from Temasek Polytechnic’s (TP) School of Business, said Grab is supported by competitive advantages derived from the acquisition of UberEats and its domination of the on-demand transportation market.
“They are building on the large customer base of existing Grab services and UberEats. Food and beverage vendors will be eager to come on board given the established set-up … Additionally, in terms of technological advantages, Grab has its own expertise on top of that from the merger with UberEats.”
Grab also seems “serious about getting a stronghold in the food delivery business” as it steers itself towards the goal of becoming an “everyday app”, said Assoc Prof Loh.
“To be able to attract so many restaurants within two months says something … This is just the beginning and I don’t think they will stop here.”
PRICE WAR BREWING?
Price will likely be the first battleground for the eager new player aiming for a slice of the market pie and incumbents defending their turfs, experts told Channel NewsAsia.
This boils down to how price-sensitive customers are and the low switching costs involved. “An alternative option is just an app away,” said Assoc Prof Loh.
Nanyang Technological University’s (NTU) associate professor Momin Zafar Abdulmajid reckoned “a price war is imminent as Grab looks to build up the size of the business quickly”.
Already, GrabFood has dished out a promo code giving users a S$5 discount for three orders before the end of this week, among other promotions.
When asked if there could be more discount codes in the pipeline, a Grab spokesperson said the company “continually creates new and exciting products, not just on the food delivery front, to ensure that customers always have something new and exciting to look forward it”.
Other food delivery players also seem to be gearing up to compete on price.
Apart from a promo code for first-time customers, London-headquartered Deliveroo has sliced its minimum order value from S$18 to S$12 and reduced delivery fees by 50 cents to S$3.
Homegrown online concierge service Honestbee also cut its minimum spend on orders by nearly half to S$8 in April and offers free delivery. “We hope that we’ll be able to entice more customers to try out our food delivery service,” said its Singapore managing director Chris Urban.
Over at major player foodpanda, the minimum spend was reduced to S$12 from S$15 in February. When asked if it could do away with that or have promo codes like its rivals, managing director Luc Andreani replied that the company focuses on balancing a long-term business model with “the dynamics of the industry” and is “continuously exploring next steps”.
MORE THAN JUST PRICE
But market observers were quick to add that while a competition on price could take place in the near term, it would unlikely be sustained as it is a costly undertaking that will ultimately be detrimental to all.
“A sustained price war, like what we saw in the ride-hailing scene, will be very bloody,” said Assoc Prof Momin, referring to the bruising battle for market control between Uber and Grab that prioritised aggressive discounts over profits.
Besides, players in the local market still have work to do when it comes to improving efficiency and profitability through the scale of their operations.
“The business is good but to make money, they will need to be of a reasonable size to optimise resources. None of them in Singapore have scaled enough to be that efficient or economical,” said the NTU professor who is experienced in strategy consulting.
Food delivery players that Channel NewsAsia spoke to clearly understood that.
Mr Andreani stressed that foodpanda’s business philosophy “is not centred around a quick-win burn-based strategy” though being backed by Berlin-based Delivery Hero means that it has “the resources and capabilities to match or better any of the offerings in the market” should it wish to do so.
The oldest player in the food delivery market here said it has signed up more delivery riders and merchants in recent months, as well as replaced UberEats in a rewards programme of e-commerce platform Lazada. Its growth plans also include opening a centralised kitchen with a dine-in concept.
“With the amount of data that we’ve amassed, we are able to successfully predict trends of our users and allows us to better plan for resource allocation to ensure that we operate at an optimal level … With a better understanding, we are able to predict and adjust our promotions accordingly to retain a strong market share and repeat orders.”
Growth for the first quarter of 2018 has been a robust 45 per cent, said Mr Andreani. But he declined to reveal specific figures on profitability and would only say that operations in Singapore are “firmly on a path to profitability” that is expected to materialise early next year.
For Deliveroo, while current priorities in Singapore remain on growth, profitability is equally important.
“In the short term because of the competition, we will have promotions but to build a product that consumers want to continue using, it’s a combination of price, selection and service,” said general manager Siddharth Shanker.
To do so, Deliveroo has invested in technology with the launch of a new business intelligence unit and set up delivery-only central kitchens here. The latter, which runs on leaner cost structures, helps it to “reduce prices more meaningfully and sustainably”.
Deliveroo has also added a “very big number” of 2,000 freelance delivery riders since April, while attracting more than 300 restaurants that were formerly listed on UberEats – boosting its total restaurant-partners to 4,000 and delivery fleet size to 6,000.
“We anticipated that with the re-establishing of a player in the market, there will be uncertainty and it will be an opportunity for us to get market share … so we put together a plan months ago and once the merger happened, we started work on it,” said Mr Shanker.
While Grab declined to reveal the exact number of restaurants it is partnering, it said a majority were from UberEats.
“Our priority was to ensure that they come on board as quickly as possible in order to continue having a platform for delivery for their F&B business,” said a spokesperson, who added that these merchants enjoyed a waiver of an onboarding fee.
Noting that there are about 4,000 restaurants and 12,000 hawker stalls that remain untapped by food delivery apps, Grab said that it “will bring more food vendors online to offer the widest selection of cuisines and local delights for consumers, and more revenue opportunities for merchants.”
SMALLER PLAYERS SEE CONSOLIDATION?
As the battle for food-delivery supremacy plays out, experts said smaller players may lose out and face consolidation.
“If the smaller rivals can’t match the deals offered to customers and partners, they might lose out. If Grab’s partner restaurants base is very large, the smaller players might lose out as well,” said associate professor Nitin Pangarkar from the NUS Business School.
However, some experts like TP’s Mr Tan said having a niche target market may help smaller players to stay afloat. Tie-ups with selected F&B outlets or diversification in the range of delivery services may also help, he suggested.
While there may be some short-term impact, Fastbee’s founder Khoo Kar Kiat said he remains confident that his business "fills an unique niche" and customers will return once the promotion campaigns wane.
Fastbee is an online portal for people to make lunch orders and later pick up their food from designated vending machines. Founded last year, the start-up focuses on delivering hawker food and targets workers at various industrial and business parks in the West.
“To keep our business sustainable, Fastbee has been continually refining our business processes in order to reduce our business cost even further,” he said.
For restaurants, the myriad of food delivery apps has been a boost to sales and brand visibility, with most preferring to team up with several platforms.
Bismillah Biryani Restaurant, for instance, is available on at least five, including GrabFood.
With the additional exposure likely to bring in more sales orders, Ms Zara Salahuddin, who manages the restaurant’s delivery business, said “there’s nothing to lose” even as terms and conditions offered by GrabFood remained the same as UberEats.
Despite that, the restauranteur said she will be watching the competition in the online food delivery scene closely.
Noting the possibility of a price war that could translate into perks for customers and restauranteurs, she said: “Who wouldn’t want lower commission rates or promo codes? But I think it’s also important that they don’t lower so much that it affects other parts of their business. That would be the worst-case scenario for all of us.”