Staying in Demand: On-Demand Food Delivery
Due to COVID-19 lockdowns, people prefer to use on-demand delivery. However, on-demand delivery is expected to still be a part of customers’ lives.
While almost every business across the world went through a tough phase in 2020 with big multi-national firms announcing layoffs and several small-scale businesses being forced to shut, on-demand delivery businesses have emerged as a fortunate anomaly. When businesses faced unprecedented losses in the year, on-demand delivery businesses witnessed a surge – but for how long?
Due to lockdowns and social distancing norms in place caused by COVID-19, people prefer to use on-demand delivery services over going out of their homes. People are ordering food, buying groceries, delivering parcels, and buying medicines via online delivery. Due to this sudden rise, on-demand delivery businesses across the globe are witnessing a sudden spike in their overall sales and profits.
The on-demand economy is estimated to reach a whopping $435 billion in the year 2021 with an annual growth rate of 49%. It is important to note that this amount was only $213 billion in 2017. Per a report by Technavio, the CAGR of the global market for on-demand food delivery is estimated to reach 32% in the year 2021.
Indonesia had the largest food delivery service market in Southeast Asia in2020 in terms of Gross Merchandise Value (“GMV”) of $3.7 billion, accounting for about 31 percent of the total food delivery value of Thailand, Singapore, Malaysia, the Philippines, Vietnam and Indonesia itself. The total GMV for the region was $11.9 billion in 2020, up 183 percent from the year before and exceeding the 91 percent growth rate from 2018 to 2019. This gives rise to a massive opportunity for food delivery start ups.
Indonesian-based on-demand multi-service platform Gojek was first launched in 2009 as a call center to connect consumers to courier deliveries and two-wheeled ride-hailing services. Valued at approximately US$10 billion today, Gojek has transformed into a SuperApp, providing more than 20services including its food delivery service GoFood that was launched in 2015. As of June 2020, the platform has about 170 million users throughout Southeast Asia and in 2020, 750,000 small businesses joined Gojek’s GoFood delivery service as more consumers ordered food from home, an increase of 50 percent from the year before.
Singapore-based ride-hailing giant Grab launched its GrabFood food delivery service in May 2018. The company is strengthening its food business by teaming up with cloud kitchen startup Yummy Corp, which will expand their combined networks to more than 80 cloud kitchens in seven Indonesian cities. In this partnership, Yummy will be assisting brands in setting up their stores, handling the branding and training staff, while Grab will be in charge of delivery and data analytics. There are currently more than 200 brands available on GrabFood, which contributes to more than 50% of Grab Indonesia’s revenue.
Competition in the space is set to increase with new entrants such as e-commerce Tokopedia and Shopee that have already started listing ready-to-eat food and beverages on their platforms since last year.
Shopee has been actively recruiting driver partners for its ShopeeFood business in Indonesia, and has rolled out advertisements on its official YouTube channel since January 10, 2021. ShopeeFood can be accessed on the main Shopee application, although drivers would have to download a separate ShopeeFood Driver app. As of February 2021, ShopeeFood has partnered with more than 500 merchants in the country.
When the pandemic started, Tokopedia launched its food delivery service Tokopedia Nyam to make it easier for people to get affordable food and beverage products without having to leave the house. The company claimed to have its number of F&B merchants and number of transactions tripled during the pandemic with their best-selling products being honey, fruits, eggs, coffee, chips, and rice. Tokopedia and Gojek are in the process of merging the two companies together.
Even after the pandemic, on-demand delivery businesses can become an inseparable part of their customers’ lives as people have grown to be accustomed to ordering food online as long as food delivery providers continue to offer top-notch services with utmost convenience and freshness.
If the vaccines are available by mid 2021, vaccination for the entire population of different countries might take a year or two. This means that on-demand delivery businesses will continue witnessing the upward trend for at least two more years.
Despite the seemingly good opportunities in the industry, not few were forced to close shop after a few months of operations. US-based Kitchen Surfing was launched in January 2016 and had to close in the following March. Also founded in January 2016, Kitch It closed in the following April. Spoon Rocket opened in September 2015 and had to pack up in February 2016. All three companies had received more than US$5 million in Seed funding. InAugust 2016, Rocket Internet-backed food delivery service FoodPanda closed its business in Indonesia. In 2018, US-based UberEats left Southeast Asia after selling its entire business in the region to competitor Grab.
The delivery service that attracts the most customers should attract the most restaurants and drivers, leading to a better service and even more customers. This network effect creates a continuously-compounding advantage, which is why many in the startup-investment community believe eventually one company will dominate the delivery market and all others will die. As a result, an unprecedented amount of investment capital has flown into a handful of aggressive competitors leading to the delivery wars. Until there is only one company left standing, growth is the sole focus. This raises the question: do food delivery services have to be part of a Superapp to do well, or can a standalone one win the battle too?