How China’s playbook could guide Grab’s drone gamble

IN JUNE, Grab announced that it was piloting drone deliveries in the Philippines. The move could streamline the delivery process in a market grappling with severe traffic congestion.

Under the pilot, which was launched in June in the capital Metro Manila, Grab delivery drivers will handle pick-ups and drop-offs from dedicated drone landing stations. This means humans continue to handle the first- and last-mile leg of deliveries.

The costly move would increase order volumes for the platform on the whole, since drivers can complete more jobs in less time. Drones can also expand the reach of merchants beyond their immediate radius and bypass congested roads so consumers obtain their goods faster.

This may be Grab’s inaugural drone test run, but it’s not the region’s first.

In 2020, Foodpanda did a similar trial in Singapore, partnering with ST Engineering to deliver “light food items” over distances of up to three kilometres, including orders to ships close to Singapore shores.

The setup was similar to Grab’s current arrangement: Drones moved orders to designated collection points, where one of the company’s riders brought it to the customer’s location.

While Foodpanda said at the time that ST Engineering’s solution could cut delivery times by half, the pilot didn’t expand into a commercial service. Foodpanda and ST Engineering both declined to comment on Tech in Asia’s questions regarding the pilot.

In South-east Asia, scaling drone delivery beyond controlled trials is difficult due to regulatory hurdles and infrastructure-level limitations, say scholars who have studied drone implementation in China.

For instance, companies need to shell out considerable capital to launch such a service. Drones require a costly network of launchpads, charging stations, and automated kiosks.

In 2021, Meituan, the Chinese food delivery titan, raised US$10 billion in funding. As at 2024, about a third has been spent on developing delivery drones and autonomous vehicles, according to its latest annual report.

Riding on the tailwinds from China?

Grab’s focus on Metro Manila likely means it will be adopting a drone delivery model that resembles Meituan’s, which has focused on last-mile deliveries in urban areas.

Grab, after all, is conducting its pilot studies in business districts, which also hold residential buildings and malls.

Since launching drone delivery services in Shenzhen in 2021, Meituan has completed over 450,000 drone deliveries in China as at June 2024. It has also expanded the service to 64 routes across cities such as Shanghai and, more recently, to Hong Kong and Dubai.

The Chinese firm’s drone delivery process still includes humans, who prepare and deliver packages to a designated drone launchpad. These packages are then loaded onto a drone, which runs on a preplanned route to a community pick-up station.

In Hong Kong, on average, it takes 15 minutes to 20 minutes for a drone to deliver a meal, about half the time it takes a human driver, Meituan’s head of public affairs Yan Yan told a Hong Kong newspaper last year.

Last-mile drone deliveries in urban areas are arguably more challenging than doing the same in rural areas. There are tall power lines, ongoing construction works, and other problematic elements.

Like Grab, Meituan’s investment in drones came as food delivery revenue became a major contributor to the company. Since 2017, more than 50 per cent of the super app’s revenue has been driven by the segment.

Differentiating prices depending on the user segment has been one way Meituan has improved its margins. For instance, a regular, price-sensitive customer may receive discounts, while a time-sensitive urban professional could be offered the premium, ultra-fast drone delivery option at a higher price, notes Ming Yii Lai, a senior consultant at Daxue Consulting.

In 2024, Meituan’s net profit margin for food deliveries was “around 4 per cent”, said Wang Puzhong, CEO of Meituan’s core local commerce division, though he added that overall profit growth came from its increased scale. That was an improvement compared to 3.3 per cent in 2021.

Likewise, charging a premium on drone deliveries could be another way Grab offers differentiated pricing to customers, Lai said.

This would be in addition to the firm’s premium subscription service, GrabUnlimited, as well as an option for cheaper delivery with longer wait times.

Grab’s primary customers for drone deliveries would likely be young professionals and families, which Grab noted as a major market for GrabFood in the Philippines. In 2023, about 50 per cent of GrabFood orders in the country came from families.

Sky-high potential

Grab’s foray into drone deliveries is but a “natural cause of action”, said Chung Piaw Teo, former chair of the PhD committee in the National University of Singapore Business School.

With six million merchants, 46 million monthly users, and five million registered drivers across South-east Asia, Grab has the scale to make drone deliveries economical.

Teo suggests that Singapore’s small market size might have limited Foodpanda’s drone logistics efforts from expanding beyond a pilot. At around six million, Singapore’s population is less than half that of Metro Manila.

Still, it’s unlikely that Grab will manufacture its own drones, like Meituan does. Instead, Grab is more likely to partner with a drone company, Teo notes.

For one, Chinese drone developers are “leading the rest of the world”, so it would make more sense to partner with one of those players. China, after all, is home to DJI, the market leader in consumer drones.

Grab is “already nine years behind the game”, Teo points out. On top of the large capital needed to develop drones in-house, doing so presents a steep learning curve.

Teo wouldn’t be surprised if the Chinese firm ends up partnering with Grab. This could mean Grab using Meituan’s established drone tech, and Meituan leveraging the former’s mapping expertise.

Grab didn’t share details on whether it is partnering with a manufacturer for its drones in the Philippines.

Will drone deliveries in SEA have wings?

Last year, 2.7 million packages were delivered by drones in China, data from the country’s Ministry of Transport shows.

In South-east Asia, the economic case for drones may be even stronger. The region’s higher labour costs compared to China make potential savings from automation even more significant, Daxue Consulting’s Lai points out.

For any company venturing into drone logistics, particularly in a diverse region like South-east Asia, government support is necessary, Teo points out.

China, for instance, has already proposed many policies to support what it calls the “low-altitude economy”, helping spur innovation in the space. Manufacturers like DJI have also received “heavy subsidies” from the government.

In June, Beijing announced that it is mulling revisions to its Civil Aviation Law to support low-altitude services by creating safety and approval rules, among other initiatives.

Grab knows this all too well.

For a pilot to be “meaningful and scalable”, active government support and committed private-sector partners – as is the case in the Philippines – are crucial, a Grab spokesperson said.

The pilot in Manila serves as a “learning exercise”, and the company is “open to exploring drone pilot studies in other markets”, the person added. TECH IN ASIA