A disruption in food delivery is looming

A growing industry, yet challenges remain

The food delivery industry has been put into the limelight like never before. It has helped bring restaurants into the homes of diners, offering consumers greater convenience, flexibility and a choice of options. The industry has also been a saviour, especially during the Covid pandemic, when restaurants relied entirely on food delivery service providers for almost all of their revenues while they remained closed for dine-in.

Post Covid-19, the spending power of local and expatriate consumers in Bangkok is on a downward spiral and the once profitable leisure-tourism market is non-existent – with little hope for a turnaround anytime soon, making the F&B industry economically one of the hardest hit.

As a result, restaurants will continue to be reliant on food-delivery services to make up for falling revenue – but at grave cost. At a time when the restaurant business is struggling, food-delivery services continue to charge restaurants commissions of up to 35% making the business-model unviable for many merchants. Still a more pressing fact is that despite charging high commissions, most third-party food delivery companies are not yet profitable, with no indication of when they will turn around, resulting in acquisitions in the delivery space as a result of market consolidation across the globe.

Apart from seeing food-delivery apps not only thrive at restaurants’ expense with high commissions, many restaurateurs are concerned at the lack of control they have over the quality of their food in the hands of delivery drivers. Furthermore, they have no control over the customer relationship management, which is a monumental part of restaurant service. Food-delivery service providers’ handling of complaints can be inconsistent and rarely mirrors the service levels restaurants provide. This causes situations where customers end up routing their complaints directly to restaurant operators, putting them in a bad light for no fault of their own. The restaurant then gets put in a position where they have to deal with complaints and offer service recovery at their own expense which further risks their reputation at a time when they need their customers most.

During the recent pandemic, food-delivery companies didn’t offer any subsidies to their merchant partners at a time when the merchants were struggling with a substantial reduction in revenue and cashflow constraints (a recent study pointed out most restaurants have less than a month’s cash requirements on hand). Meanwhile, most Thai landlords were proactively offering a 50%-70% rent reduction to their F&B tenants across Bangkok.

Many Food-delivery providers may lack an infinite mindset to support and build stronger relationships with their restaurant partners, despite profiting heavily from them. Between June 2018 and 2019, GrabFood claimed that its gross merchandise value (GMV) grew 900%, with delivery volume growing seven times during this period across its six markets in Southeast Asia. During the pandemic, third-party food delivery providers also had a substantial increase in new customer acquisitions as consumers were forced to use their services during lockdowns across nations. With the shift in consumer behaviour and the ‘new normal’, this demographic of customers is expected to continue using delivery platforms going forward and contribute to increased revenues for the providers.

A recent study in the United States reported that during the Covid-19 pandemic, the percentage of in-home dining increased substantially and is expected to continue increasing in the next 8-12 months, resulting in a loss of $50 billion in revenues to the country’s restaurant industry. This has created a paradigm shift in the F&B world where dining now means picking up your phone and ordering in via your favourite delivery platform, forcing restaurants to get creative with other measures rather than just offering good food and drinks to lure customers in. Expect local restaurants in Bangkok to offer more entertainment options for their customers going forward, making for better overall experiences.

Although there has been a shift in the way consumers access restaurant food, there is still more change to come. A disruption in the food-delivery business is imminent due to a number of prevailing factors. Similarly hotels and Online Travel Agents (OTA's) have grabbed a significant share of the online travel market while charging high commissions. A number of new start-ups are attempting to join and disrupt the food delivery business in Thailand, including Robinhood, a corporate venture company under the SCB Group, and a Thai start-up called Scootar Beyond Ltd, with an investment budget of 100 million baht.

But who will be the ultimate game-changer? At the end of the day, surely the business model that will truly disrupt the existing ecosystem in a positive way will and should be merchant-centric, rely on lower commission rates from restaurants, and operate reliable and friendly customer service for the benefit of all parties.

The word is out on which emerging new business models may threaten the market share of existing players. Although bets may be being placed on who might emerge the winner, one factor remains irrefutable: the customer will always win. As long as customers continue to enjoy the convenience and incentive to pick up their phones and order food from their favourite restaurants to be delivered to their doorstep, there will be no denying that the food-delivery business is here to stay. The only thing that we have to wait and watch for is where this industry delivers next.