Just over a year after entering the Japanese market, the German food delivery group Delivery Hero – known for its Foodpanda brand in Asia – has announced its withdrawal, citing increased competition and a shortage of drivers.
Sales highlight challenges for food delivery operators in Japan and elsewhere in Asia, where regional players face global giants. Although the supply market is expected to continue to grow, operators are forced to reconsider their growth strategy, and analysts say greater industry consolidation is expected in the coming years.
Delivery Hero entered Japan through its Foodpanda brand in September 2020. Counting on growing demand for food delivery due to the Covid-19 pandemic, the company expected the world’s third largest economy to be an important market for the group and focused a lot of resources on setting up operations there.
Foodpanda CEO Jakob Angele, who leads the Asia-Pacific operations of the company from its Singapore headquarters, stayed in Japan for three months from late 2020 to early 2021 to build business in a new market. With successful experiences in a variety of markets – from highly developed Singapore and Taiwan to emerging Bangladesh – Foodpanda was confident of its entry into Japan. It started in big cities like Kobe, Yokohama and Nagoya, with the goal of finally expanding the fast food delivery business beyond food.
But as he was late to Japan, the group faced stiff competition.
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The Japanese market is dominated by two players: Uber Technologies and local operator Demae-can, a company listed on the Tokyo Stock Exchange and supported by the popular messaging app Line. According to the American 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 exceeded 100,000 stores. Both services continue to invest aggressively in attracting customers – Demae-can reported a net loss of ¥ 20.6 billion ($ 179 million) for the fiscal year ended August.
Foodpanda has not revealed the number of restaurants on its platform in the country. But his presence was weaker than the two giants. Of about 3,600 respondents in an online survey conducted by Japan’s ICT Research and Consulting in February, 428 people said they use Demae-can, while 426 people said Uber. Only 34 used Foodpand.
In addition, demand spurred by Covid attracted other operators: Uber’s U.S. rival DoorDash entered Japan in June. DoorDash has also expanded following the recent acquisition of 7 billion euros ($ 8 billion) by Finnish Wolt, which has been operating in Japan since March 2020. Chinese vehicle giant Didi Chuxing has also launched a food delivery business in Osaka in 2020 and since then it has expanded its service to eight prefectures.
“Since the launch of the service, the landscape of the Japanese market has changed significantly,” a representative of Foodpande in Singapore told Nikkei Asia, following the announcement of the sale. “External factors, such as an increased number of players and a shortage of drivers, resulted in a new reality on the field later this year.”
Foodpanda’s sales primarily reflect the competitive delivery market in Japan – where smaller operators face difficulties in attracting customers and delivery staff. But a similar situation can be seen in other Asian markets, where American, European and local companies are closed to fierce competition, while marketing costs to acquire customers and drivers are hampering profitability.
In Singapore, for example, Foodpanda and Deliveroo from the UK are chasing the domestic super-application Grab in a three-way fight. The Indonesian market is more of a battle among Asian companies. Local super application Gojek’s GoFood and Grab’s GrabFood are the biggest players, but Singapore’s technology counterpart Sea quickly expanded its ShopeeFood delivery service in Indonesia over the past year.
Before Foodpanda announced its exit from Japan, the consolidation of the industry in the region was already underway. In July, Gojek sold most of his business in Thailand, including food delivery, to Malaysian AirAsia. Gojek had a 7 percent share of the Thai food delivery market in 2020, lagging behind Grab with 50 percent, Foodpand with 23 percent and Line with 20 percent, according to research by Singapore-based consulting firm Momentum Works.
The food delivery industry is expected to grow in many markets. For example, in Southeast Asia, the total gross value of the sector’s goods is projected to rise 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, a report by ICT Research and Consulting showed that the size of the market will increase by 38 percent to 682 billion JPY from 2020 to 2023.
But Foodpanda’s exit from Japan suggests not everyone will necessarily benefit from this growth. “The food delivery platform is ultimately a relatively low-margin business that needs to build huge volume and density to be profitable,” Jianggan Li, executive director of Momentum Works, told Nikkei Asia.
A change in the regulatory environment could also affect earnings, prompting operators to reconsider growth models. For example, in August, Singaporean Prime Minister Lee Hsien Loong expressed concern about the low salaries of suppliers and called for more protection, which would result in higher social costs for platform operators. In some Western jurisdictions, there is already a trend towards requiring companies to treat drivers as employees rather than as independent contractors. The latter approach helps operators reduce costs but provides less protection for drivers.
As battles are raging across Asia, many operators are expanding to deliver groceries and other on-demand fulfillment services.
As she leaves Japan, Foodpanda said it will expand its “fast trade” food delivery service to other markets. “We are constantly identifying new opportunities for growth within the region, in different markets, growth areas and new verticals, primarily in the area of fast trade,” said a representative of Foodpande.
Grab, which is also expanding its GrabMart grocery delivery, announced in December the acquisition of a Malaysian supermarket chain, which would help expand its grocery delivery business.
“Competition is still fierce,” Lee said, noting that some operators are well-capitalized. “The challenge for every player is therefore how to maintain an increase in volume and density while improving the efficiency of operations at all levels. They have to do all this in a very competitive environment. ”
Foodpanda plans to sell its business in Japan in the first quarter of 2022. The sale was a “very difficult decision,” the company said. But there could be more sales and acquisitions in the region’s food delivery industry.
“I think there are more than two big food delivery platforms in a few markets, not to mention new startups with groceries on demand,” Li said. “It’s hard to see the market in the medium term so we can host more profitable players.”
Version of this article first published by Nikkei Asia on December 27, 2021. © 2021 Nikkei Inc. All rights reserved