Getting your favorite food delivered right at your doorstep
Its size maybe dwarfed by those of North America and Western Europe, but the online food delivery business in Asia has been witnessing steady growth of about 15% a year. Food delivery service in Asia now appears poised for a breakthrough to the next level, as more players both domestic and international enter the industry.
Author: Nithi Kaveevivitchai
Getting your favorite food delivered right at your doorstep
Its size maybe dwarfed by those of North America and Western Europe, but the online food delivery business in Asia has been witnessing steady growth of about 15% a year. Food delivery service in Asia now appears poised for a breakthrough to the next level, as more players both domestic and international enter the industry.
Restaurants were once thought to be immune to the threat of eCommerce, but the arrival of online food delivery platforms have transformed the industry into a new battle ground. Competition among online restaurant aggregators as well as logistic networks are intense as several partnerships are formed in an attempt to create a business model that would best appealed to each distinct market segments.
While food delivery in China is dominated by domestic players, smaller markets in Southeast Asia have been more promising for international and regional players like Deliveroo, Foodpanda, Ubereats and LINEMAN, which has been especially popular in the Thai market. The high growth potential and fast changing consumer behavior in Southeast Asian markets have offset their small market size and continued to attract new businesses.
Customer is more powerful than ever before
EIC has identified two major underlying factors behind changing customers behavior during this rise. First, smartphone penetration and internet access which allow everything to be connected at a fingertip. With the technological advancement, consumers are discovering their interests virtually through their smartphone’s screen and the need to physically be outside of the house to learn about new places is diminishing. The second factor is that digital consumers in this generation are much more savvy and particular. Moreover, they are ensuring that their voices are also being heard much louder through online comments and reviews.
As a result, online food delivery services serve right at the heart of these digital savvy consumers by allowing them to be able to have their favorite dishes from the restaurants of their choices at anytime and anywhere. The service works as a substitution of the effort to go out and fight the traffic or to wait in line for hours to be seated in a busy restaurant. In a similar manner, it is also a replacement for meals that were prepared and consumed at home. With the rising urbanization and the Asian hectic working culture, consumers are looking for an easy treat and nothing could beat a beloved menu delivered right to the living room and having it while watching your favorite TV show. Along with many other new digital services, these online food delivery platforms are invented to please the demanding customers.
Localization to stand up against fierce competition
Noting that the demand is here to stay, this does not necessary mean any players have a permanent advantage in capturing this opportunity. There are five key competing factors that those platform aggregators who wish to win in online food delivery must possess. These factors are the delivery time and coverage area, variety of restaurant choices, delivery cost, payment methods and user experiences.
Nevertheless, with this highly competitive market environment, challenges are inevitable. EIC has broken down majors challenges that online food delivery platforms are expected to encounter into external and internal factors.
External challenges or those factors that the platform aggregators are unable to control are: the food standard from the restaurant, technology acceptance or the level of adoption rate among users and the strong pricing due to competition in the market. Whereas the internal challenges are logistic management, business model for drivers and the high marketing cost. Those platform aggregators that could come up with the right business model to optimize their logistic service as well as create the right incentive model to keep the drivers working for them would be able to create satisfaction for the users.
It is also very important to keep in mind that each market has its own uniqueness and success story elsewhere cannot be directly transferred to another market. The business shutdown of Foodpanda in Vietnam and Indonesia presents a very good example. The German-based Foodpanda had sold off its Vietnam unit in 2015 to local rival and in the following year terminated its operation in Indonesia, admitting losing the competition with the new generation of app-based taxi services that also offers food delivery.
Key factors behind the failure of Foodpanda in these markets are its unsuitable business model for the local environment. In Vietnam, Foodpanda’s rival, Vietnammm, a subsidiary of one of the world’s largest online food delivery websites Takeaway, could operate the deliver services in a much cheaper cost as compared to those of Foodpanda. During its operation time in Vietnam, Foodpanda hired around 100 full-time employees which was deemed to be too large of a group for the service they provided. In Indonesia, meanwhile, the close-range delivery service is believed to be a weakness that made it hard for Foodpanda to compete. This strategy limited the options available to users and at the end have turned customers away.
Local market’s knowledge and understanding are therefore at the forefront of winning strategies. It is vital that the food service operators and aggregators realize customer’s list of priorities in each market and make sure that those are being delivered at all time.
The right combination of all to become a clear winner
Asked what we would expect to see in the near future of online food delivery sector, EIC has analyzed that we would witness blurring of segments between food and non-food delivery as players attempt to offer both services. However, we expect to see more non-food delivery platforms expand their business into food-delivery than the other way around.
Acquiring or partnering in order to cover both segments will be norm to gain larger user base. This also includes collaboration with logistic experts and food review platforms to create a more complete and interactive user experience.
We also expect that only a handful of players will remain as clear winners overtime. Given in the first phase of marketing spending, platforms are forced to spend great amount of money to capture users. But only those players with strong financial backups can survive and thrive in the long run. Lastly, product differentiation will be the ultimate key success factor. Platforms will be competing on their abilities to meet sophisticated customer’s demands such as number of restaurants, type of restaurants, recommendation services, coverage location and unique customer services. It is clear that digital food delivery service in Asia is here to stay and those who can find the right touch of each market by utilizing the perfect mixture of glocalization (globalization + localization) will triumph.