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September 17, 2022

The Southeast Asian food delivery business thrived during the pandemic, and Singapore-based Grab was one of the most successful in a crowded field.

But as the pandemic recedes and diners begin to venture out again, companies are under pressure to adjust their business models to meet new challenges.

The six biggest food delivery markets in Southeast Asia reached a combined gross merchandise value of USD 15.5 billion last year, according to Singapore-based analytics company Momentum Works. Grab controlled a 49% share of that pot.

The runner-up at 22% was Foodpanda, an affiliate of German platform Delivery Hero. GoTo Group, the parent of the Indonesian mobility platform Gojek, was third at 14%.

Grab captured the top spot in all but one market, Malaysia, where Foodpanda’s 49% share edged out Grab’s 48% slice.

Localization that tailors services to each country in the region has been one key to success.

Grab has grown chiefly through its ride-hailing business. The company expanded market shares through its localization strategy, rolling out versions of the app with languages, interfaces and payment functions customized for each market.

In 2018, Grab took over Uber Technologies’ Southeast Asian business. Through the deal, Grab acquired UberEats’ network in the region as well as the app’s food delivery expertise. Those assets provided the springboard for Grab to launch its own food delivery business.

Although European in origin, Foodpanda was the pioneer in Southeast Asia’s food delivery sector, having entered the region in 2012. In March last year, parent company Delivery Hero completed the purchase of Woowa Brothers, which operates South Korea’s biggest food delivery app Baemin. The Baemin platform is also active in Vietnam.

But in Indonesia, where motorcycle taxis are the norm, Foodpanda was overtaken by Gojek’s fleet of two-wheeled couriers and shut down local business operations in 2016. Foodpanda even withdrew from Vietnam for a time in 2015.

Southeast Asia’s food delivery market is on track to expand to USD 49.7 billion in 2030, according to US analytics group Frost & Sullivan, which would be 3.3 times that of 2021. Demand is projected to grow for food transport, advertising and other peripheral industries.

Food deliveries continue to attract newcomers. Last year, Singaporean tech giant Sea Group expanded into the Indonesian market, later entering Malaysia, Thailand and Vietnam.

But stay-at-home demand, which supercharged the industry, has started to wind down. Grab reported a gross merchandise value (GMV)—the total value of transactions made through Grab’s platform—of USD 2.47 billion for its home delivery arm for the April-June quarter, which undershot the company’s USD 2.55 billion guidance.

The full-year consolidated GMV is projected to grow by 21% to 25%, downgraded from the previously forecast gain of between 30% and 35%.

“[We] anticipate some softening of the food delivery demand,” said a Grab executive.

Food delivery companies are rushing to expand logistics networks and customer engagement in a bid to capture more users. In January, Grab completed the purchase of Malaysian high-end supermarket chain Jaya Grocer. Last month, the startup joined hands with Coca-Cola to gain access to a wider lineup of products and partner stores.

Grab plans to upgrade a fixed-rate monthly subscription service, which was recently rolled out in beta form. The program will target frequent users of the superapp.

Meanwhile, Grab’s closest rival Foodpanda has positioned its business-to-business services for restaurants as a major revenue source. Foodpanda is considering developing software for participating restaurants and food suppliers that facilitates order receipts and fulfillment.

“There is still a lot to do on the food side,” Foodpanda CEO Jakob Angele told Nikkei.

GoTo is focusing resources at home in Indonesia, Southeast Asia’s largest market. In July 2021, subsidiary Gojek sold its Thai operations to Capital A, the parent of Malaysian low-cost carrier AirAsia.

Last month, in the interest of boosting synergy across the group, GoTo added Gojek’s food delivery functions to Tokopedia, the subsidiary online shopping app.

The cutthroat competition has kept food delivery businesses in the red, and cutting operational costs has emerged as an urgent challenge. Grab has captured market share by offering a smorgasbord of discounts and other sales incentives.

This time around, the company is committed to “accelerating our path to profitability,” said CEO Anthony Tan.

Grab has closed fulfillment centers in three countries, including Singapore, with the goal of overall deliveries to break even on adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the second quarter of 2023.

This turn toward profitability can be traced to investors who have run short of patience. For the first half, Grab turned in a net loss of USD 1 billion. Although the result is an improvement from the $1.4 billion loss from a year earlier, Grab’s stock value has fallen to a quarter of the debut price in December on Nasdaq.

Foodpanda exited Japan in January, a little over a year after entering the market. The company decided to focus resources on its core markets in Southeast Asia. In April, Delivery Hero revealed plans to achieve positive adjusted EBITDA on a group level in 2023.

Antitrust authorities moving to crack down on the food delivery oligopolies present another hazard. When Uber agreed to transfer Southeast Asian assets to Grab, Singaporean officials fined both companies. The Philippines halted operational mergers until it completed an anti-competition review.

When Delivery Hero bought Woowa Brothers, the German company was forced by South Korea’s fair trade commission to sell off Delivery Hero Korea, which manages the second-largest food delivery app in the country.

The contributions of gig workers has supported the growth of food delivery apps, but unstable working conditions have created an underclass of laborers. In August 2021, Singaporean Prime Minister Lee Hsien Loong said the government plans to support gig workers, the leader singling out by name the companies that have hired them.

“I am especially concerned about a specific group” of low-wage workers, said Lee. “These are the delivery workers. They work with online platforms like Foodpanda, Grab or Deliveroo.”

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.

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