Mon. Jan 24th, 2022

Just over a year after entering the Japanese market, Germany’s food delivery group Delivery Hero – known for its Foodpanda brand in Asia – announced its withdrawal, citing increased competition and a shortage of drivers.

The rejection highlights the challenges for food delivery operators in Japan and elsewhere in Asia, where regional players are facing global giants. Although the delivery market is expected to continue to grow, operators are being forced to reconsider their growth strategy, with analysts saying more industry consolidation is expected in the coming years.

Delivery Hero entered Japan through its Foodpanda brand in September 2020. With the growing demand for food delivery due to the Covid-19 pandemic, the company expected the world’s third largest economy to be a major market for the group and was fed a lot of resources to set up operations there.

Jakob Angele, CEO of Foodpanda, which leads the company’s Asia-Pacific operations from its headquarters in Singapore, stayed in Japan for three months from late 2020 to early 2021 to build the business in the new market. With successful experiences in various markets – from highly developed Singapore and Taiwan to emerging Bangladesh – Foodpanda was confident in its entry into Japan. It started in big cities like Kobe, Yokohama and Nagoya, with the goal of eventually expanding its fast delivery business beyond food.

But as a latecomer to Japan, the group faced stiff competition.

This article is from Nikkei Asia, a global publication with a unique Asian perspective on politics, economics, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 division provides in-depth coverage of 300 of the largest and fastest growing listed companies from 11 economies outside Japan.

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Two participants in the Japanese market lead: Uber Technologies and local operator Demae-can, a Tokyo-listed company backed by the popular messaging application Line. According to the US operator, Uber’s food delivery service Uber Eats has about 130,000 restaurants and other stores on its Japanese platform. Demae-can announced on December 24 that it had passed 100,000 stores. Both services are still investing aggressively to gain users – Demae-can reported a net loss of ¥ 20.6bn ($ 179m) for the financial year ended August.

Foodpanda did not disclose the number of restaurants on its platform in the country. But his presence was weaker than the two giants. Of about 3,600 respondents to an online survey conducted by Japan’s ICT Research and Consulting in February, 428 people said they used Demae-can, while 426 people said Uber. Only 34 used Foodpanda.

On top of that, Covid-driven demand drew other operators: Uber’s US rival DoorDash entered Japan in June. DoorDash has also expanded following its recent acquisition of € 7 billion ($ 8 billion) from Finnish Wolt, which has been operating in Japan since March 2020. Chinese travel giant Didi Chuxing also launched a food delivery business in Osaka in 2020 and has since served eight prefectures.

“Since the launch of the service, the landscape of the Japanese market has changed significantly,” a Foodpanda representative in Singapore told Nikkei Asia, following the rejection announcement. “External factors, such as a larger number of players and a shortage of riders, resulted in new ground realities by the end of this year.”

Foodpanda’s rejection mainly reflects Japan’s competitive delivery market – where smaller operators are having difficulty attracting customers and delivery staff. But a similar situation can also be seen in other Asian markets, where US, European and local companies are caught up in fierce competition, while marketing costs for acquiring customers and drivers hamper profitability.

In Singapore, for example, UK Foodpanda and Deliveroo are chasing the home-grown superapp Grab in a three-way battle. The Indonesian market is more of a struggle among Asian companies. Local superapp Gojek’s GoFood and Grab’s GrabFood are the biggest players, but Singapore’s technology counterpart Sea has rapidly expanded its ShopeeFood delivery service in Indonesia over the past year.

Before Foodpanda announced its exit from Japan, industrial consolidation in the region was already underway. In July, Gojek sold most of its Thai business, including food delivery, to Malaysia’s AirAsia. Gojek had a 7 per cent share of Thailand’s food delivery market in 2020, and was behind Grab at 50 per cent, Foodpanda at 23 per cent and Line at 20 per cent, according to research by Singapore consultant Momentum Works.

The food delivery industry is expected to grow in many markets. For example, in Southeast Asia, the total gross merchandise value of the sector is expected to increase to $ 23 billion in 2025 from $ 12 billion in 2021, according to a report released in November by Google, Temasek Holdings and Bain & Co. Japan, the ICT Research and Consulting’s report showed that the market size will grow by 38 percent from 2020 to 2023 to 682 billion yen.

But Foodpanda’s exit in Japan suggests that not everyone will necessarily benefit from this growth. “The food delivery platform is ultimately a relatively low-margin enterprise that needs to build large volume and density to be profitable,” Momentum Works CEO Jianggan Li told Nikkei Asia.

Changing regulatory environments can also affect earnings, prompting operators to reconsider growth models. For example, in August, Singapore’s Prime Minister Lee Hsien Loong expressed concern about delivery workers’ low wages and called for more protection, which would lead to higher welfare spending for platform operators. In some Western jurisdictions, there is already a tendency to require companies to treat managers as employees rather than independent contractors. The latter approach helps operators keep costs low, but offers less protection to drivers.

As fighting heats up across Asia, many operators are expanding to deliver groceries and other on-demand fulfillment services.

As it leaves Japan, Foodpanda has said it will expand its “fast-trading” grocery delivery service to other markets. “We are constantly identifying new growth opportunities within the region, in different markets, growth areas and new verticals, mainly in the area of ​​fast trading,” the Foodpanda representative said.

Grab, which is also expanding its GrabMart grocery delivery business, announced in December the acquisition of a Malaysian supermarket chain, which will help expand its grocery delivery business.

“Competition remains fierce,” Li said, noting that some operators are well-capitalized. “The challenge for each player is therefore how to increase volume and density and at the same time improve the efficiency of operations at all levels. They have to do it all in a highly competitive environment. ”

Foodpanda plans to sell its Japan business in the first quarter of 2022. The rejection was a “very difficult decision”, the company said. But there could be more rejections and acquisitions in the region’s food delivery industry.

“I think in some markets there are more than two major food delivery platforms, not to mention the emerging on-demand grocery start-ups,” Li said. “It is difficult to see the market in the medium term to be able to accommodate more profitable players.”

A version of this article was first published by Nikkei Asia on December 27, 2021. © 2021 Nikkei Inc. All rights reserved

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