Hungry for Southeast Asia, Foodpanda to eat into Grab and Gojek’s share

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One decade but 50X the growth. It’s not often one sees numbers like that. And yet, that is the projected rate of growth for the food delivery industry in Southeast Asia, one study shows. This mammoth potential market is the one that trouble-ridden European food delivery firm Foodpanda wants to crack.

Founded in 2012, the company had quickly established a wide footprint across Asia and some Eastern European countries before it hit a rough patch in 2016. It shut down its business in Indonesia and sold its Vietnam and India units.

It looked like defeat.

But in late 2019, the year in which ordering food on-demand went from being a once-in-a-while activity to a regular habit for many, the tables turned.

Foodpanda’s parent company Delivery Hero, founded in Germany and listed in Amsterdam, acquired South Korean food delivery firm Woowa Brothers in a $4 billion deal. And Southeast Asia’s little red dot, Singapore, is the headquarters for the new Woowa-Delivery Hero Asia joint operations, making the region the epicentre of this food delivery empire.

Foodpanda 2.0 anyone?

Southeast Asia represents a big growth opportunity for the sector. East Asia countries like South Korea, Taiwan, and Hong Kong are considered relatively mature markets and Woowa has been operating profitably at home for some years already.

“In more mature food delivery markets […] food delivery is estimated to make up around 10-15% of the overall F&B spend,” a spokesperson from GrabFood, on-demand platform Grab’s food delivery arm, told The Ken. Grab offers food delivery in six countries across Southeast Asia at the moment. “In Southeast Asia, this number stands at less than 5% […] there’s significant headroom.”

Indeed, the combined total value of online food orders (called gross merchandise value, or GMV) is poised to hit $5.2 billion by the end of the year, the joint study by Google, Temasek, and Bain projected—more than doubling in size from 2018.

By 2025, this number is projected to breach the $20 billion mark.

And Foodpanda is getting ready for it. The company is moving its R&D centre from Berlin to Singapore and wants to develop its own mobile wallet, a former Foodpanda employee told The Ken.

It also wants to make big investments in cloud kitchens, a form of business that rents out fully functional kitchens to restaurants. Foodpanda is aiming to go from the “handful” of cloud kitchens it operates now to 100 in the region in 2020.

Cloud kitchens represent a critical new phase in the evolution of food delivery business models. They can help delivery platforms save on costs and let restaurants produce food cheaper. As a result, the format got a lot of attention and funding in 2019. One only has to look at Rebel Foods, India’s largest cloud kitchen startup, to understand why. And Rebel Foods, best known for its brand Faasos, is entering the region in partnership with Gojek, Grab’s biggest rival.

In order to navigate this landscape of opportunity, Foodpanda’s second act will need to learn from past mistakes. When it retrenched in 2016, it was because of the rise of on-demand platforms like Gojek and Grab, which had introduced the concept of offering food delivery alongside transportation and other services. Grab and Gojek expanded so quickly that Foodpanda struggled to keep up.

Now Foodpanda will have to face-off against these two—especially Grab, which is the only challenger in the area with a regional footprint comparable to Foodpanda. In addition, its appetite for Southeast Asia will affect Gojek, whose expansion into Thailand and Vietnam is still in the early stages. Indonesia, the region’s biggest market for food delivery, might well turn out to be the weak spot in Foodpanda’s plans for a comeback—the company no longer has a foothold in the market since its troubles in 2016.

For parent company Delivery Hero, which cut its losses in Germany and is now looking towards Asia, this is a battle it cannot afford to lose.

The Woowa factor

Investors seem confident of Delivery Hero’s chops, however.

The company’s share prices skyrocketed after the deal with Woowa Brothers in December.

Prices reached 70.80 euros ($79.01) per share at close on 3 January 2020, up from 50.16 euros ($56.20) on 12 December 2019, the day before the deal was made public.

This is despite Delivery Hero Group’s overall losses. The firm’s latest Q3 2019 statement reveals that it is hundreds of millions in the red, with an EBITDA of negative 420 million euros (-$468 million).

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