Foodpanda’s quick withdrawal from Japan highlights Asia’s delivery war

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

The divestment highlights challenges for food delivery operators in Japan and elsewhere in Asia, where regional players face global giants. While the delivery market is expected to continue to grow, operators are being forced to rethink their growth strategies, with analysts suggesting more consolidation in the industry in the coming years. the coming years.

Delivery Hero entered Japan through the Foodpanda brand in September 2020. Due to the growing demand for food delivery due to the Covid-19 pandemic, the company had expected that the world’s third largest economy would be a market is important to the corporation and brings a lot of resource profit into establishing operations there.

Foodpanda CEO Jakob Angele, who 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 business in new markets. With successful experience in various markets – from highly developed Singapore and Taiwan to emerging Bangladesh – Foodpanda is confident in its Japan. It started in major cities like Kobe, Yokohama and Nagoya, with the ultimate aim of expanding its express delivery business beyond food.

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

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

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Leading the Japanese market are two companies involved: Uber Technologies and local operator Demae-can, a Tokyo-listed company backed by popular messaging app Line. According to the US operator, Uber’s food delivery service Uber Eats has about 130,000 other restaurants and stores on the Japanese platform. Demae-can announced on December 24 that it has surpassed 100,000 stores. Both services are still investing heavily to attract users – Demae-can reported a net loss of 20.6 billion yen ($179 million) for the fiscal year ending August.

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

Additionally, Covid-driven demand has attracted other operators: Uber’s rival DoorDash entered Japan in June. DoorDash has also expanded following the €7 billion acquisition of Finland’s Wolt ( $8 billion) recently, operating in Japan since March 2020. Chinese ride-hailing giant Didi Chuxing also opened a food delivery business in Osaka in 2020 and has since expanded the service. to eight counties.

“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 announcement of the divestment. “External factors, such as increased player numbers and a shortage of riders, lead to a new ground reality later this year.”

Foodpanda’s divestment mainly reflects Japan’s competitive delivery market, where smaller operators have had difficulty attracting customers and delivery workers. But a similar situation can be seen in other Asian markets, where US, European and local companies are facing stiff competition, while marketing costs to attract customers and drivers stand in the way. return profit.

In Singapore, for example, Foodpanda and Deliveroo of the United Kingdom chased the homegrown Grab in a three-way battle. The Indonesian market is a battle between Asian companies. Gojek’s GoFood and Grab’s GrabFood are the biggest players, but Singapore’s peer-to-peer technology company Sea has rapidly expanded its ShopeeFood delivery service in Indonesia over the past year.

Before Foodpanda announced its withdrawal from Japan, regional industry consolidation was already underway. In July, Gojek sold most of its business in Thailand, including food delivery, to Malaysia’s AirAsia. Gojek has a 7% market share in food delivery in Thailand by 2020, losing to Grab with 50%, Foodpanda at 23% and Line at 20%, according to research by Singapore-based consulting firm Momentum Works.

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

But Foodpanda’s exit from Japan shows that not everyone will necessarily benefit from this growth. Jianggan Li, managing director of Momentum Works, told Nikkei Asia: “Food delivery platforms are ultimately a relatively low-margin business that needs to build up in volume and density in order to get the most out of it. profitable.

Changing regulatory environment could also affect earnings, prompting operators to rethink growth models. For example, in August, Singapore’s Prime Minister Lee Hsien Loong expressed concern about the low wages of delivery workers and called for more protections, which would lead to higher welfare costs for operators. communication. In some Western jurisdictions, there has been a tendency to require 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 wars erupt across Asia, many operators are expanding into grocery delivery and other on-demand delivery services.

Upon leaving Japan, Foodpanda said it would expand its “fast commercial” grocery delivery service in other markets. “We are constantly identifying new growth opportunities in the region, in new markets, growth regions and verticals, primarily in the rapid commercial sector,” said a Foodpanda representative.

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

“Competition is still stiff,” said Li, noting that some operators are already well-capitalized. “Therefore, the challenge for each player is how to continue to increase volume and density while simultaneously improving operational efficiency at all levels. They need to do all of this in a highly competitive environment.”

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

“I think in a few markets, there are more than two major food delivery platforms, not to mention the emerging on-demand grocery store startups,” Li said. “It’s hard to see the medium-term market that could attract 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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