Disrupting the disruptors: Will AirAsia's entry shake up the food delivery business?

• Several eateries still lament about the high commission charged by the three major food delivery players
• They also describe long wait times for drivers during peak periods
• Although AirAsia is promising commission rates half of what its rivals charge, one expert does not think this will last
• But what seems clear is that customers will stand to benefit from the greater competition

SINGAPORE — Ms Fiona Lim charges S$4.50 for a medium bowl of bak chor mee (minced meat noodles) at a food centre in Bukit Merah.

About a quarter of her business comes from selling them on food delivery platforms, but she nets little profit from online sales after deducting the delivery firms’ commission.

“We hawkers tend to be at a disadvantage because we don’t take as much profit. Our food costs are actually very high,” said the 31-year-old who runs Chun Seng Noodle House with her husband.

With Malaysian budget airline AirAsia Group entering the food delivery business, some merchants here see the new entrant as an alternative to the Big Three players which have been the source of their biggest bugbears — high commission and long waits for delivery riders during peak hours.

The Malaysian budget airline launched its food delivery service in Singapore earlier this month and threw the gauntlet at its rivals, saying it would be charging a 15 per cent commission rate for all its merchants.

This is lower than commission charged by the Big Three players — GrabFood, Foodpanda and Deliveroo — which is understood to range between 25 and 35 per cent.

HIGH COMMISSION

In April last year, during the circuit breaker period, Mr Colin Chen wrote a widely-shared Facebook post detailing how little a food outlet earns from fulfilling a delivery order on GrabFood.

Today, he is still being charged about 30 per cent in food delivery commission.

“Everyone is running a business, even Grab, Foodpanda or all the other players,” the owner of restaurant-bar The Refinery at King George’s Avenue said.

“If they have to reduce commission, one of the places would be to cut drivers’ earnings, which would be unfair… So I don’t think the problem is entirely on them, I just think the cost of fulfilment for delivery is expensive here.”

Based on an ongoing study being conducted by the Singapore Productivity Centre and the National University of Singapore (NUS), some restaurant owners have in fact not been making any money from sales through food delivery platforms.

The centre’s chief executive officer Michael Tan said that this was especially so for the small restaurants with lower profit margins.

Mr Teddy Chong, the co-owner of The Shepard’s Pie bakery, said AirAsia Food’s low commission was a big draw for him.

The bakery pays about 30 to 36 per cent in commission for orders through the Big Three. That’s equivalent to about S$12 in fees for a S$39 pie, compared to the S$6 fee AirAsia charges.

The 52-year-old listed his bakery on AirAsia Food this month. But despite the hefty cuts taken by the major platforms, he said he does not expect them to reduce their commission and is prepared to continue using their services.

“It is good exposure and they constantly do a lot of marketing… so we do get new customers. Then hopefully, the new customers will come and order directly from us.”

LOW-COST MODEL

One way AirAsia is keeping prices for merchants and customers low is by getting rid of maps to track real-time locations of riders.

Mr Joshua Woon, 26, one of the owners of restaurant Gu Thai House that was listed on AirAsia Food last week, said that unlike the Big Three, the newcomer does not provide him with a mobile device to handle orders.

Instead, it sends out orders to the restaurant via messaging platform WhatsApp.

“AirAsia’s commission structure is really low and beneficial for food and beverage outlets. Other food platforms eat a lot into the margins, but they do bring in a certain amount of sales commensurate with what they charge,” he said.

RIDER CRUNCH

While AirAsia Food’s lower commission could benefit restaurants, whether or not it will solve the issue of a lack of drivers is still up in the air.

Mr Loh Lik Peng, founding director of Unlisted Collections which owns more than 20 restaurants including Burnt Ends and Cheek Bistro, said that his restaurants often have trouble getting matched with a driver to deliver their orders.

During peak periods, it can take over an hour, he said, worse still when it’s a special occasion such as Mother’s Day or Valentine’s Day.

Unlike the Big Three, AirAsia Food does not employ its fleet of delivery riders directly. It uses the services of the airline group’s logistics arm Teleport, which launched in Singapore last year.

Associate Professor Lawrence Loh from the NUS Business School said this allows AirAsia to source for riders from different players.

Mr Tan from the Singapore Productivity Centre said that such a model means AirAsia can even out its delivery demand given that the bulk of food deliveries are made during the lunch and dinner peak hours.

This was not the first time a logistics company went into on-demand food delivery — Pickupp, a Hong Kong-founded firm, did just that in March last year.

Its co-chief operating officer Lee Chee Meng said that about 70 to 80 per cent of Pickupp’s riders work on an ad-hoc basis, including housewives who want to earn extra income, allowing it to tap a wider group of riders to fulfil demand.

WILL THIS LEAD TO LOWER COMMISSIONS?

As of June last year, the Big Three were clearly the most dominant players in Singapore, with GrabFood and Foodpanda leading Deliveroo by far, a survey by Rakuten Insight found.

The Tokyo-based research firm asked more than 5,000 respondents in Singapore to choose up to two food delivery apps that they used the most.

About 77 per cent of them picked GrabFood, 61 per cent chose Foodpanda and 14 per cent said Deliveroo. The next on that list was WhyQ, at 2 per cent, and Grain, at 1 per cent.

In response to TODAY’s queries about whether it would be lowering its commission with AirAsia Food’s entry, GrabFood said it remains focused on supporting merchants with the tools to digitise and grow their business online.

Deliveroo said its commission varies according to its relationship with each merchant and can vary based on exclusivity or length of contract. Foodpanda said it is not distracted by competitors and will stay focused on bettering its delivery speed, product and service offerings.

Professor Foo Maw Der from Nanyang Business School said he believes AirAsia’s low commission is unlikely to pressure other firms to lower their rates. He sees it as AirAsia’s strategy to attract merchants to sign up with them.

“It is doubtful that the current food delivery firms can be profitable with AirAsia’s commission rates,” he said. “I don’t see AirAsia keeping this commission level in the longer term.”

Despite the highly competitive market dominated by established players, Mr Loh, the NUS professor, believes there is still room for the sector to grow.

“There are about 2.7 million food delivery users in Singapore now,” he said. “If you look at our residential population, this is barely about half of it.”

According to research firm Statista, revenue in Singapore’s online food delivery market is projected to reach US$541 million (S$730 million) this year and is expected to grow by close to 9 per cent yearly until 2024.

WHAT THIS MEANS FOR CONSUMERS

From Jan 1 last year to March 5 this year, the Consumers Association of Singapore (Case) received more than 200 complaints against food delivery platforms, most of which were about the companies failing to deliver food or delivering wrong items.

Case’s president Lim Biow Chuan said: “We hope that greater competition will lead to more competitive prices and better service standards for consumers in the long run.”

The Restaurant Association of Singapore similarly welcomed more competition in the food delivery space and noted that some cities around the world have started to legislate a cap for food delivery commissions.

What is clear from AirAsia’s entry into food delivery here is that consumers will stand to benefit from competitive prices and having more choices, at least for the short term, experts said.

Adjunct Associate Professor Zafar Momin from Nanyang Business School said that customers are very sensitive to food delivery prices and there is little to stop them from choosing whichever platform is the cheapest.

“In that situation, the consumer always wins.”