New peaks for food delivery as the sector sees consolidation and maturity: Momentum Works

Total gross merchandise value (GMV) for food delivery in South-east Asia hit a new peak of US$15.5 billion last year, a 30 per cent increase from 2020's high of US$11.9 billion according to a report by venture builder Momentum Works.

The slower growth in GMV was expected after 2020's surge of 183 per cent year-on-year (yoy) due to lockdowns reducing dine-ins, but represents a shift in habits by consumers.

"This is a representation of a consumer habits shift which has become permanent," said Li Jianggan, founder of Momentum Works.

Growth was uneven across the region, with Thailand and Malaysia experiencing the highest yoy growth at 42 per cent or US$1.2 billion and 45 per cent or US$500 million respectively. Vietnam lagged the region with minimal growth moving at 14 per cent or US$100 million.

There are also some signs of consolidation in the sector, as Grab now accounts for about half of the region's food delivery GMV at US$5.9 billion, while foodpanda (US$2.5 billion) and Gojek (US$2 billion) trail behind at second and third respectively. This hints at the growing maturity of the food delivery sector across the region, as top players concentrate market share and raise the barriers to entry.

For now, the region is considered at stage 3 of consolidation just below the mature stage, as players are spending to create new growth via cloud kitchens or quick commerce (q-commerce). The food delivery sector has now moved beyond stage 1 of building partnerships and the stage of growth, where restaurant and customer acquisition is the main activity.

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"What we heard is that most South-east Asia countries are in the third stage," said Crystal Yau, analyst at Momentum Works.

As food delivery matures in the region, it's likely that the leading players will expand their services to create stickiness with both customers and merchants. Chinese food delivery player Metiuan now has services to increase stickiness such as having a system for restaurants to order ingredients to community group buys for consumers.

"We see a strategy of (Meituan) trying to have more control on the supply side so that their market position is more defendable," said Li.

This is reflective of what's happening in South-east Asia, as just operating a pure food delivery business is not enough for a platform to sustain their competitive advantage or gain profitability. Now, players are looking to increase customer retention and efficiency of their infrastructure with more services to build a moat in this competitive landscape.

Thus, groceries are the next frontier for food delivery players as they seek to find a new growth engine. South-east Asia's grocery expenditure dwarfs food services expenditure by a factor of 3 in 2020, with grocery spending hitting US$344.1 billion compared to food services spending at US$92.3 billion. Estimates for 2025 grocery spending stands at US$474.8 billion, while food services only hits US$107.5 billion.

Online penetration for the grocery segment in 2020 only accounts for 1 per cent in South-east Asia compared to 10 per cent for online food delivery. This makes groceries a huge underpenetrated market ripe for the picking. But as The Business Times wrote previously, players will need to figure out the most efficient model to monetise this segment across the fragmented region.

"As experience in China has shown, whoever does well in the grocery segment captures the customers because it's a frequent purchase and is able to disrupt e-commerce as well," said Li.

Profitability is not quite out of reach for players here as Meituan has proven that it is possible, but it takes volume, density and operational efficiency to achieve. Operational efficiency on all fronts has been key to achieving this, but it takes time, investment and learnings to turn red into black, according to Momentum Works.

Food delivery will continue to grow in 2022, as players consolidate market share and introduce new services.

"As players expand into more new cities and services, and the restaurant industry becomes more digitally-enabled, we anticipate continued growth of food delivery well into 2022," said Li.

Read more:

• Grab and foodpanda go physical in race to win q-commerce grocery wars
• Grab's asset-light model acquiring more of a physical flavour
• Specialised indicator may be required to track food delivery expenditure