Online Food Delivery – A Winner-Takes-All Market?

A set of players in Asia are redefining the food delivery market enabling customers to order from a huge range of restaurants. The speed of delivery, options of food, and convenience are the primary driving forces which are leading to this shift in consumer behavior. Adapting to local tastes and budgets while ensuring that every food lover receives the best possible customized offering is the key to succeed in this fast-growing sector.

Tough competition among players in different markets

Currently, the global food delivery market is worth $95 billion, whereas the online food delivery market of Asia is worth around $53 billion with China alone accounting for $37 billion, which makes up almost 40% of the global market. The food delivery market has seen exponential growth across many countries in Asia due to its expansive potential and rapidly growing demand. This is due to the availability of diverse food options, the busy schedules that make it hard for people to cook or eat out, as well as the marketing push by the players.

Let’s look at some of the individual markets. China’s food delivery market has seen the most remarkable growth with operators, such as Eleme, Meituan, and Baidu Takeout, enabling quick and hassle-free ordering experience from any restaurant.

Similarly, Singapore is a battleground for food delivery apps such as GrabFood, HonestBee, Foodpanda, and Deliveroo. Despite the fierce competition among existing players, a new set of entrants has emerged to capture a more targeted group of users. Plum offers a curated menu for office-going customers and delivers at selected meeting points in central business districts. Foodies looking for late-night treats can opt for Porterfetch, which operates from 9:00 PM to 3:00 AM. Indonesia’s GO-JEK, which has a food delivery arm called GO-FOOD, has also unveiled plans to enter the Singapore market soon.

With fierce competition in every market and customers being more selective with their choices and expecting more convenience with new technology options, companies need to figure out the key elements that draw customers in – cost, choice of food, speed of delivery, and other factors.

The race for capturing the highest market share

For any food delivery service to succeed, the scale is important; and operators are adopting innovative ideas for expansion. In India, Zomato and Swiggy are going head-to-head to grab the dominant market share. With its recent round of funding, Swiggy entered the Unicorn Club with a 1-billion-dollar funding round led by Naspers and is now commanding a valuation of $3.3 billion. This puts more pressure on rival Zomato, which was last valued at $2 billion.

Singapore’s market is no different as players are trying to build scale. When GrabFood made its introductory moves with striking promotions such as a discount of S$5 for three orders, other players also bounced back with different promotions from discounts to slashed minimum order values and free home delivery. Deliveroo slashed its minimum order amount of $12 to increase its customer base in some specific areas of Singapore.

Effective promotional campaigns to attract customers

In order to be able to change consumer behavior in a big way, it is imminent that marketing and promotional dollars will have to be spent. Food delivery operators harness effective promotional campaigns to increase sales and attract consumer attention. Most food delivery apps draw in customers by announcing a discount price for first-time users, promo codes, and different schemes for regular users.

A huge amount of investments are flowing into the market. What is the reason behind investors’ confidence?

The answer to this question may be the same reason why investors continue to invest in the ride-hailing market. They are betting on online food delivery becoming an integral part of a contemporary lifestyle and being accepted by the millennials as well as other segments in a big way.

Massive investments in this field continue to flow, such as the one from SoftBank. According to reports, SoftBank Group Corp. plans to invest between $500 million to $750 million in Zume Inc., a startup that makes and delivers fresh pizzas with the help of robots. Such investments depict SoftBank’s larger ambitions to pool in more funds into the food delivery industry.

Food delivery apps generate revenue from both merchants and customers. This model also encourages small food delivery vendors to establish their online presence and serve a growing digitally savvy customer base. This is certainly one of the most interesting markets for especially the ride-sharing companies that are seeing slow growth in their core market.

Winner-takes-all market

Major players are using various types of levers to win this race such as modern logistical capabilities and tech-enabled consumer experiences. They are deploying predictive algorithms to work on quicker delivery schedules and improve app efficiencies. Machine learning algorithms are being used on many components like order volume, delivery location, and the availability of drivers to calculate the exact arrival time of an order. They are using real-time delivery data to identify the most efficient routes the driver can take to arrive at the customer’s location. Restaurant owners are also benefiting because of contemporary apps – the data of customers within a specific neighborhood is analyzed to determine what the most popular cuisines are and which cuisines need to be added to that area (to the menus). From a consumer’s perspective, some apps not only allow posting reviews after a meal but also let users send messages to the chef. Listening to customer feedback gives companies a better chance to improve the quality of customer service.

The comparison between food specialist companies and generalist companies is particularly interesting when trying to understand the plausible winners. Deliveroo in Singapore (or FreshMenu in India), which is a food specialist company, owns the kitchen(s) and has complete control on the menu as well as the quality of food, which has its own advantages. Some food specialists are pure marketplaces – like Swiggy in India – that offer an extensive range of food options from a vast range of restaurants. But in the case of generalist platforms that offer ride-sharing, food delivery, and other things (like Uber Eats or GrabFood), their core strength is transportation (bikes and cars) and they can easily rely on the huge customer base for rides which is already built. However, they may need separate drivers to pick up and deliver food on time. Furthermore, the number of restaurant options and the variety of food choices is much lesser on generalist platforms when compared to specialist platforms. With a huge number of players venturing into food delivery landscape, it is difficult to say who will win the race between generalists and specialists.

It is here that payment giants like Mastercard can play a major role. According to Mastercard’s EVP (Digital & Emerging Partnerships and New Payment Flows) for Asia-Pacific, Rama Sridhar, All said and done, the scale of operations in food delivery is a big asset, and it certainly looks like a winner-takes-all market. Food delivery operators who master the art of creating a deeper bond with their customers while providing a superior experience and enhancing operational efficiencies will stay on top of the game. Mastercard is keen on partnering with players like Grab, Swiggy, and others in the Asia-Pacific region, to help them grow while ensuring that our cardholders always receive a top-notch ordering experience, whether through exclusive offers or by enjoying the sheer simplicity of making secure digital payments.

The food delivery market is constantly evolving with new concepts, such as the cloud kitchen (a production unit for food ordering portals without the dine-in facility). What is clear is that this business needs massive investments in logistics, technology, and other areas. In the times to come, strategic partnerships with experienced stakeholders will be critical to the successful growth of the food delivery industry.