No one is really happy with food delivery platforms anymore

When food delivery platforms first emerged, they were hailed as an innovative new venture that would bring convenience to our daily lives.

With just a few clicks, foodies were able to enjoy a wide range of dishes delivered directly to their doorstep. Smaller restaurants could reach a much larger pool of customers. People got delivery jobs. Delivery startups were the darlings of the capital market, receiving huge investments.

But after a decade of living with Baedal Minjok, Yogiyo and, more recently, Coupang Eats, many seem to wonder if these apps have made things any better.

Kim Seung-june, 32, is skeptical after a recent experience.

Preparing for a housewarming party, he browsed the Baedal Minjok app for fried chicken and bossam, a Korean pork dish. The food from the two different restaurants came to a combined total of 50,000 won ($38.16), but the delivery charge was one-fifth of that amount, or 10,000 won.

“I ended up getting the food myself from the restaurants. I knew the delivery charges were skyrocketing, but it was too much,” he said.

Surveys suggest customers who lost their appetite for food delivery had similar reasons.

A poll commissioned by the Seoul Institute and conducted in March found that about 52 percent of Seoul citizens who did not use delivery services in the first quarter of this year cited the economic burden of rising food and delivery costs.

The average cost of food delivery in Seoul in May rose about 12 percent from March, according to data from Korea’s National Council of Consumer Organizations. The cost of delivering a meal for a single person has risen by more than 40%, he showed.

Restaurant owners are also complaining about the increase in commissions they pay on orders received via delivery platforms.

“The profit margin on deliveries is low. Single-serving orders generate almost no profit,” said Kim Sung-hwan, who runs a small American Chinese restaurant in Mapo-gu, Seoul, adding that he would suspend delivery services if he had enough. customers who place orders directly. at the restaurant.

Oh Eung-kyung, who opened a dessert cafe in Seongbuk district in November last year, said a third of what customers pay through delivery apps goes to platforms in the name of various fees. , such as advertising and subscription fees.

“During the first three months of opening, I only charged customers 2,000 won for each delivery. With that, the profit was not enough for the work I did,” she said. Oh added that she delivers coffee to locations near her store to cut costs.

What customers pay for delivery costs does not cover the full cost of hiring a delivery person to fulfill the order. Restaurant owners generally bear part of the actual delivery costs incurred to attract more customers, in addition to paying commissions to the platforms.

So, are delivery platforms making money? Not really.

Woowa Brothers, the operator of Baedal Minjok, posted revenue of 2 trillion won in 2021, nearly double that of a year earlier, as the prolonged COVID-19 pandemic drove up the request for food delivery. But its operating loss increased nearly sevenfold to 75.7 billion won over the same period.

Coupang Eats posted $3.5 billion in operating losses in 2021. The unlisted Yogiyo is not required to disclose its earnings, but its earnings structure is not significantly different from that of its competitors.

The food delivery market has grown rapidly since the onset of the COVID-19 pandemic. According to Statistics Korea, it was valued at 25.7 trillion won last year, up 2.6 times from 2019.

When announcing its 2021 results in late March, Baedal Minjok said the losses are the result of outsourcing, primarily the expenses it pays to delivery agents. It spent some 574 billion won on outsourcing services last year, a huge jump from 181 billion won in 2020.

Increased competition between platforms has created a vicious cycle.

Apart from big budget advertisements and promotions, the increase in outsourcing spending was mainly due to the introduction of single meal options on Baedal Minjok and Coupang Eats. By processing a single order at a time, passengers could deliver individual orders faster compared to bulk deliveries involving multiple orders delivered to multiple locations in a single trip. But single-meal delivery means platforms need more agents to fulfill orders. Platforms rushed to recruit runners with rewards and incentives, leading to a huge increase in associated costs.

Has the rise of food delivery apps made life better for delivery people?

Wages and conditions have improved, but dissatisfaction remains widespread. Unions have long argued that delivery workers are one of the least protected groups in today’s economy. Working primarily as gig workers, riders are entitled to few or none of the work-related benefits workers usually get. Their plea for better protections sparked discussions in South Korea about the conditions of workers in the gig economy.

Baedal Minjok and Coupang Eats, after a long battle with delivery workers’ unions over working conditions, such as no insurance coverage for traffic accidents, decided to hire full-time delivery workers. The latest demand from the unions is for a bigger chunk of delivery costs.

By Park Han-na ([email protected])