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Foodpanda’s quick Japan exit highlights Asia’s delivery wars

Just over a 12 months after coming into the Japanese market, Germany’s meals delivery group Delivery Hero — identified for its Foodpanda model in Asia — introduced it was pulling out, citing elevated competitors and a scarcity of drivers.

The divestment highlights the challenges for meals delivery operators in Japan and elsewhere in Asia, the place regional gamers face off in opposition to world giants. Though the delivery market is predicted to proceed to develop, operators are being pressured to rethink their development technique, with analysts saying extra trade consolidation is predicted within the coming years.

Delivery Hero entered Japan by means of its Foodpanda model in September 2020. Counting on rising demand for meals delivery because of the Covid-19 pandemic, the corporate had anticipated that the world’s third-largest financial system can be an necessary marketplace for the group and funnelled numerous assets into establishing operations there.

Foodpanda chief government Jakob Angele, who leads the corporate’s Asia-Pacific operations from its Singapore headquarters, stayed in Japan for 3 months from late 2020 to early 2021 to construct the enterprise within the new market. With profitable experiences in varied markets — from extremely developed Singapore and Taiwan to rising Bangladesh — Foodpanda was assured in its Japan entry. It began off in massive cities equivalent to Kobe, Yokohama and Nagoya, with an purpose of ultimately increasing its quick delivery enterprise past meals.

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But as a latecomer to Japan, the group confronted stiff competitors.

This article is from Nikkei Asia, a world publication with a uniquely Asian perspective on politics, the financial system, enterprise and worldwide affairs. Our personal correspondents and out of doors commentators from around the globe share their views on Asia, whereas our Asia300 part supplies in-depth protection of 300 of the most important and fastest-growing listed corporations from 11 economies outdoors Japan.

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Leading the Japanese market are two contributors: Uber Technologies and native operator Demae-can, a Tokyo-listed firm backed by common messaging app Line. According to the US operator, Uber’s meals delivery service Uber Eats has about 130,000 eating places and different shops on its Japanese platform. Demae-can introduced on December 24 that it had surpassed 100,000 shops. Both providers are nonetheless investing aggressively to accumulate customers — Demae-can reported a internet lack of ¥20.6bn ($179m) for the fiscal 12 months led to August.

Foodpanda has not disclosed the variety of eating places on its platform within the nation. But its presence has been weaker than the 2 giants. Of about 3,600 respondents to an internet survey performed in February by Japan’s ICT Research and Consulting, 428 individuals stated they used Demae-can, whereas 426 individuals stated Uber. Just 34 used Foodpanda.

In addition, Covid-driven demand drew different operators: Uber’s US rival DoorDash entered Japan in June. DoorDash has additionally expanded after its current €7bn ($8bn) acquisition of Finland’s Wolt, which had been working in Japan since March 2020. Chinese ride-hailing big Didi Chuxing additionally launched a meals delivery enterprise in Osaka in 2020 and has since expanded its service to eight prefectures.

“Since launching the service, the landscape of the Japanese market changed significantly,” a Foodpanda consultant in Singapore informed Nikkei Asia, after the divestment announcement. “External factors, such as an increased number of players and a shortage of riders, resulted in new ground realities toward the end of this year.”

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Foodpanda’s divestment primarily displays Japan’s aggressive delivery market — the place smaller operators face difficulties attracting clients and delivery workers. But the same state of affairs may also be seen in different Asian markets, the place US, European and native corporations are locked in fierce competitors, whereas advertising and marketing prices for buying clients and drivers hinder profitability.

In Singapore, for instance, Foodpanda and Deliveroo of the UK chase homegrown superapp Grab in a three-way combat. The Indonesian market is extra of a battle amongst Asian corporations. Local superapp Gojek’s GoFood and Grab’s GrabMeals are the most important gamers, however Singaporean tech peer Sea has quickly expanded its ShopeeFood delivery service in Indonesia over the previous 12 months.

Before Foodpanda introduced its exit from Japan, trade consolidation within the area was already below method. In July, Gojek bought most of its Thai enterprise, together with meals delivery, to Malaysia’s AirAsia. Gojek had a 7 per cent share of Thailand’s meals delivery market in 2020, falling behind Grab at 50 per cent, Foodpanda at 23 per cent and Line at 20 per cent, in response to analysis by Singaporean consultancy Momentum Works.

The meals delivery trade is predicted to develop in lots of markets. For instance, in south-east Asia, the full gross merchandise worth of the sector is projected to extend to $23bn in 2025 from $12bn in 2021, in response to a report launched in November by Google, Temasek Holdings and Bain & Co. In Japan, the ICT Research and Consulting’s report confirmed the market measurement will develop 38 per cent to ¥682bn from 2020 to 2023.

But Foodpanda’s Japan exit suggests not everybody will essentially profit from this development. “The food delivery platform is eventually a relatively low-margin business that needs to build huge volume and density to be profitable,” Jianggan Li, chief government of Momentum Works, informed Nikkei Asia.

Changing regulatory environments might additionally have an effect on earnings, prompting operators to rethink development fashions. For instance, in August, Singapore’s prime minister Lee Hsien Loong expressed concern over delivery employees’ low wages and referred to as for extra safety, which might end in increased welfare bills for platform operators. In some western jurisdictions, there’s already a pattern in direction of requiring corporations to deal with drivers as workers moderately than unbiased contractors. The latter strategy helps operators maintain prices down however supplies fewer protections for drivers.

As battles warmth up throughout Asia, many operators are increasing into grocery delivery and different on-demand fulfilment providers.

As it leaves Japan, Foodpanda stated it will broaden its “quick commerce” grocery delivery service in different markets. “We are constantly identifying new growth opportunities within the region, in different markets, growth areas and new verticals, primarily in the area of quick commerce,” the Foodpanda consultant stated.

Grab, which can also be increasing its GrabMart grocery delivery, introduced the acquisition of a Malaysian grocery store chain in December, which might assist broaden its grocery delivery enterprise.

“Competition remains fierce,” stated Li, noting that some operators have been well-capitalised. “The challenge for each player, therefore, is how to keep increasing volume and density while at the same time improving the efficiency of operations at all levels. They need to do all these in a highly competitive environment.”

Foodpanda plans to promote its Japan enterprise within the first quarter of 2022. The divestment was a “very difficult decision”, the corporate stated. But there may very well be extra divestments and acquisitions within the area’s meals delivery trade.

“I think in a couple of markets, there are more than two large food delivery platforms, not to mention the emerging on-demand groceries start-ups,” Li stated. “It is hard to see the market in the medium term to be able to accommodate more profitable players.”

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

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