South-east Asia food delivery GMV growth in 2022 slows to 5%: report
THE total gross merchandise value (GMV) of South-east Asia’s food delivery platforms in 2022 grew a muted 5 per cent to US$16.3 billion after supercharged growth from the pandemic, according to the Food Delivery Platforms in South-east Asia report by venture builder Momentum Works.
The slowing growth compared to 30 per cent in 2021 and 183 per cent in 2020 was due to a few factors, from capital markets’ demand for profitability, as well as the reopening of borders and resumption of dine-in at food and beverage (F&B) outlets.
“The competitive landscape became a lot more muted in 2022 compared to 2021. New entrants such as Shopee and AirAsia have gone back to focus on their core sectors, while incumbent players adopt a much more conservative expansion strategy,” said Li Jianggan, chief executive officer and founder of Momentum Works.
GMV did not grow equally across all markets, with larger markets reporting a decline while smaller ones saw growth. The three largest markets, namely Indonesia, Thailand and Singapore, recorded declines in GMV. Singapore’s GMV decline from US$2.9 billion in 2021 to US$2.5 billion in 2022 was due to the shift of food services demand offline, while Thailand’s drop from US$4 billion in 2021 to US$3.6 billion in 2022 was attributed to the withdrawal of government subsidies for food delivery and floods. Indonesia recorded a modest fall in GMV from US$4.6 billion in 2021 to US$4.5 billion last year.
Malaysia, the Philippines and Vietnam recorded growth for 2022 food delivery GMV, with Malaysia’s growing from US$1.6 billion to US$2.2 billion. GMV for the Philippines rose from US$1.6 billion in 2021 to US$2.4 billion last year, while Vietnam’s increased from US$0.8 billion in 2021 to US$1.1 billion in 2022.
Grab has extended its market leadership position over food delivery players in the region, sustaining GMV growth over the last three years. The company’s GMV has grown from US$5.9 billion in 2020 to US$7.6 billion in 2021, to US$8.8 billion last year. Others, like Gojek and Shopeefood, have maintained GMV between 2021 and 2022, while Foodpanda’s GMV declined from US$3.4 billion in 2021 to US$3.1 billion in 2022.
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With food delivery margins at around six per cent in South-east Asia, food delivery players will have to raise profitability by optimising costs via cutting subsidies and improving operational efficiencies, or exploring additional revenue streams such as advertising, subscription and financial services.
One way food delivery platforms have been optimising costs has been in controlling payments and removing third-party payment processors. With slim margins in the food delivery business, paying the 1 to 2.5 per cent fees to payment processors can be a huge expense.
“In South-east Asia, we see that GrabPay and ShopeePay have been aggressive in acquiring merchants, but last year, they shifted their focus to their own platform. A large part of that is to increase conversion on the platform and reduce payment cost,” said Li.
Subscription is a way that food delivery platforms have been trying to segment customers who are able and willing to pay for special entitlements, making the service sticky for them. But subscriptions do not offer flexibility for platforms to tweak as customers expect certainty in their subscriptions.
“People pay for subscriptions, they expect something and you can only change that once in a while. It is quite demanding for the platform to see what they can offer in a subscription package that costs them less than the value perceived by the consumers paying for it,” said Li.
Food delivery platforms that pivoted into groceries in 2022 have now stopped or scaled down their dark stores, with Grab shuttering its operations. There is barely any product market fit for the dark-store model, according to Momentum Works.
The platforms are unlikely to give up grocery delivery altogether, but have largely stopped owning inventory and running dark stores, said Li. The dark-store model that has been profitable has been with select Chinese cities with little competition.
“They achieve about 3,500 to 4,000 orders per day per dark store in a 1.5 kilometre to 2 kilometre radius. This is a tall order, because that number of orders allows them to optimise what kind of inventory to carry and reduce wastage and inventory costs, as well as have sufficient orders to bundle and optimise delivery costs,” he said.
But there is some overlap between food delivery customers and grocery customers, with Li noting that about five per cent of Grab’s food delivery customers became grocery delivery customers.
As food delivery platforms refocus on profitability over growth, Momentum Works believes that the sector can be profitable.
“We believe profitability is attainable with volume, density and operational efficiency,” said Li.
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