Choo Yun Ting

Singaporeans have developed a ravenous appetite for online food delivery, with riders now a common sight at restaurants and hawker centres around town and it is only going to get bigger from here.

Delivery firms told The Straits Times there is still room for growth – new customers are still being acquired while the tech-heads are constantly tackling the question of how they can boost consumers’ order frequencies.

Recent studies back up their opti-mism. A report released by Google, Temasek Holdings and Bain & Com-pany this month said the food deliv-ery sector in South-east Asia could grow to US$20 billion (S$27.4 bil-lion) by 2025, almost four times its current US$5.2 billion.

But on-demand food delivery is a competitive arena and platforms here have been moving into other business areas, leveraging on their expertise in food and beverage to generate new revenue streams.

Associate Professor Geoffrey Chua from Nanyang Technological University’s Nanyang Business School noted that food delivery players could change their pricing model, such as introducing sub-scription plans.

Although he thinks the food deliv-ery sector is not likely to slow down any time soon, “the market will eventually saturate” and there is a need for players to expand to other services, which firms here have shown.

MARKETING CHANNELS

Foodpanda, one of the early entrants in food delivery here, is looking at selling marketing pack-ages to the more than 7,000 restau-rant partners it works with.

Its Singapore managing director Luc Andreani told The Straits Times that the company does tar-geted marketing on its platform for a mix of vendors who request pro-motions or have been selected for marketing initiatives.

The vendors that foodpanda pro-mote are usually either new clients that it wants to increase vis-ibility for, brand names which have “untapped potential” or larger clients who “deserve special treatment”.

Mr Andreani said: “It’s very much a direction that all e-commerce platforms are heading towards. It’s just a very natural direction that we empower the vendors to do more and more marketing on their own, but at some point, they have to pay for it.”

Local start-up Oddle, which pro-vides delivery platform services to food and beverage operators, started providing marketing-as-a-service to restaurants late last year.

It works with around 1,000 food merchants here.

Oddle’s marketing service – which operates offline and online – is also bundled with its commis-sion-based business model.

Oddle chief financial officer Solomon Tan said: “The opportu-nity for restaurants is that this is an outsourced marketing role where it’s more effective for us to do it for them.

“They can continue to do what their operations need, yet access the sophistication that’s required to run an online business.”

Deliveroo launched an online portal in October last year that also

allows restaurants to set up their own marketing options.

It has 6,000 restaurants and about 2,000 hawkers, foodcourts and small establishments on its platform.

The portal provides restaurants with access to data on their orders and customer ratings. The promo-tion-setting function gives restau-rants more control and flexibility over how they market to their consumers, said Deliveroo Singa-pore country manager Siddarth Shanker.

MAXIMISING UTILITY OF DELIVERY FLEETSeveral players told The Straits Times that they intend to use their fleet in other areas beyond on- demand meal deliveries.

Ms Annetta Chan, head of busi-ness development and strategy at food delivery company WhyQ, said it has ventured into delivering seasonal food products.

WhyQ, which partners with

around 2,200 hawker stalls across more than 20 food centres, has offered seasonal items like Deep-avali sweets and bak kwa on its delivery platform as well.

GrabFood has also seen success with its seasonal food offerings, especially its durian delivery ser-vice introduced in 2016, said Mr Dilip Roussenaly, head of Grab-Food Singapore.

It started offering mooncakes and salted egg snacks through its platform this year.

Mr Andreani said foodpanda is looking at how it can add other services and product types so it can better deploy its fleet, which has more than 8,000 active riders. But he did not elaborate on these poten-tial new initiatives.

CLOUD KITCHENS AND MARKETPLACESNational University of Singapore Associate Professor Lawrence Loh noted that food delivery firms are moving from online to offline food operations, like Deliveroo with its Editions food market.

“It’s still a new concept and there is much potential in the integration of delivery platforms into the restaurants,” he said.

Deliveroo launched its first Edi-tions central kitchen in 2017 and has added two more since.

Its first location is purely for ful-filling delivery orders, while the other two have dine-in spaces as well.

Mr Shanker said: “Editions is a very important business. We’ve gone into brick-and-mortar and there’s a significant capital expendi-ture involved.”

He said the company decides on locations based on where there are clear gaps in terms of food options and service, adding that it has launched its Editions kitchens in a

slow and steady manner.Several restaurants that were

launched in the first Editions kitchen are also operating in the newer locations, which demon-strates that the model is working for them, Mr Shanker added, noting that Deliveroo is looking at other possible Editions locations.

“They get access to a platform where they can experiment with things they cannot try out in their normal kitchens, but they are able to test and see what works and sometimes take it back to their origi-nal brands as well,” he said.

Foodpanda has opened two central kitchens where restaurant vendors prepare the food and the companies’ riders pick up orders from. A third kitchen is in the pilot phase.

Foodpanda also plans to develop virtual brands which are 100 per cent online, allowing it to tailor the menus and price points according to the gaps identified in certain areas, Mr Andreani said.

Both Deliveroo and foodpanda are opting to work with partners to operate in the kitchens for now, as it is not a core competency for either of the companies.

GrabFood has launched delivery-only kitchens in the region, expand-ing rapidly in Indonesia, in parti-cular. It has previously stated that it would set up a cloud kitchen – a delivery-only facility for online orders – here by this year, but there has not been much development.

Mr Roussenaly said: “We are taking the time to understand the needs of our merchant partners, delivery partners and consumers in relation to cloud kitchens, and find-ing the best solution that works for them before we launch our cloud kitchen here.”

However, it set up its Hawker Hubs in August this year, where food prepared by hawker partners is consolidated at delivery hubs before the orders are delivered to customers.

MOVING UP ON THE SUPPLY CHAINWhyQ’s Ms Chan said it is working on the “backward aggregation of raw materials”, which would see it coordinate the supply of products like vegetables, meat items and dry goods to hawker stalls.

It is working with Enterprise Singapore on this initiative and hopes to launch the service some time in the second quarter next year.

Ms Chan said: “Through our app, it’ll be a one-stop solution where they can choose multiple suppliers to work with and they can order their supplies through the app.”

Hawkers usually have different suppliers for various products and some of WhyQ’s partners said a platform that aggregates them would be useful, she added.

The company would work with the suppliers and their existing delivery models to assess how they can provide these supplies in an efficient and cost-effective man-ner, she added.

Mr Law Chung Ming, director of transport and logistics at Enter-prise Singapore, said consolidating purchases allows hawkers and suppliers to enjoy improved opera-tional efficiency and potential cost savings.

Logistics service providers may also require fewer drivers to fulfil their orders while maintaining quality service standards, he said.

“The optimisation of delivery routes and services can also poten-tially help to alleviate traffic conges-tion in areas such as carparks and loading bays,” he added.

yuntingc@sph.com.sg

Food delivery companies have been expanding rapidly here in re-cent years, but slim profit margins and the competitive landscape mean they need to be savvy about how they expand and structure their business model, say experts.

They identified an oligopoly in the sector here – foodpanda, Deliv-eroo and GrabFood are the major players, although several smaller firms are slowly carving their niches within the booming indus-try as well.

Revenue in the local online food delivery sector is expected to ex-ceed US$342 million (S$466 mil-lion) this year, up 27 per cent from last year, according to research firm Statista. By 2023, the segment could generate close to US$600 mil-lion in turnover.

The revenue numbers certainly demonstrate a strong growth trajec-tory.

Deliveroo Singapore’s turnover rose 69 per cent to $44.5 million last year, while foodpanda recorded $42.2 million in revenue for 2017, a 21 per cent increase from the previous year.

Regulatory filings show that Oddle recorded $1.17 million in sales for 2017, a more than three-fold rise from the previous year.

WhyQ declined to disclose full-year revenue numbers but said it generates about $400,000 in gross turnover monthly.

Grab did not release exact figures but said its GrabFood business ac-counts for over 20 per cent of the company’s total gross merchant vol-ume across South-east Asia.

Despite the revenue growth, it is how food delivery players manage their margins that is more crucial for their long-term success, said ex-perts.

Associate Professor Tan Joo Seng of Nanyang Technological Univer-sity’s (NTU) Nanyang Business School noted that food delivery is a volume-driven business where low margins – often less than 5 per cent – are pressured by fierce competi-tion.

The slim margins are also dimin-ished by the high delivery and labour costs in Singapore, he said.

“The cost pressures will continue to grow as more vendors and more

orders will mean more riders are needed,” Prof Tan added.

Associate Professor Lawrence Loh of the National University of Singapore (NUS) Business School also noted that it is always a chal-lenge for food delivery companies to determine the optimal commis-sions to charge restaurant vendors to give them adequate incentives to stay on the platform.

“Ultimately, the coming frontier is to monetise the data,” Prof Loh said. “There is a limit to how pure-play delivery platforms can mone-tise the data.”

Associate Professor Geoffrey Chua, also of the Nanyang Business School, predicted that the growth of the food delivery space is not likely to slow any time soon, espe-cially with continuous innovation to drive down costs and improve quality to tap consumers across dif-ferent income segments.

All three professors agreed that there is a shift among delivery play-ers towards businesses related to the supply side of the food and bev-erage sector.

One example is the emergence of

central kitchens, which allow for greater efficiencies in logistics for food delivery companies.

“The margins for delivery in itself can be razor-thin, and making food allows the players to capture a larger share of the profits,” Prof Loh said, noting that some players want to be directly involved in food preparation as they become more integrated into the supply chain.

This aggregated model, Prof Chua said, provides firms with cost savings which can be shared with consumers, vendors, delivery part-ners and the firms themselves.

“This could be significant but (it is) only the beginning. There will be other developments along the idea of aggregation.”

Prof Tan said that the current business model of food delivery is not sustainable, and there is very lit-tle differentiation among the play-ers, with the competition being all about cost.

Food delivery operators are ulti-mately only as successful as they can make their platform “sticky” – referring to how integrated it is into consumers’ habits – and attractive to consumers and vendors, he said.

“The real competition is to see which food delivery player has the superior business model.”

Choo Yun Ting

The food delivery sector in South-east Asia could grow to US$20 billion by 2025, almost four times its current US$5.2 billion, according to a report released this month by Google, Temasek Holdings and Bain & Company.ST PHOTO: LIM YAOHUI

Food delivery firms leverage their expertise to tap new revenue streams as competition hots up

Online firms on a roll to feed big appetite for on-demand food

OPERATIONAL EFFICIENCY

The optimisation of delivery routes and services can also potentially help to alleviate traffic congestion in areas such as carparks and loading bays.

’’MR LAW CHUNG MING, director of transport and logistics at Enterprise Singapore,on consolidating purchases.

$466mExpected revenue in the local online food delivery sector this year, according to research firm Statista.

BENEFIT OF DIVERSIFYING

The margins for delivery in itself can be razor-thin, and making food allows the players to capture a larger share of the profits.

’’ASSOCIATE PROFESSOR LAWRENCE LOH, of the National University of Singapore Business School.

Managing profit margins key to long-term success, say experts

A6 TOPOFTHENEWS | THE STRAITS TIMES | WEDNESDAY, OCTOBER 30, 2019 |