Are we losing our appetite for food delivery apps?

Small restaurant owners got access to a much wider pool of customers. People got jobs as delivery riders. Delivery start-ups were the darlings of the capital markets, receiving massive investment.

But after a decade of living with food-delivery apps, South Koreans are starting to question whether they have made us happier.

Kim Seung-june, 32, said doubts were roused by his recent experience.

Preparing for a housewarming party, he browsed the Baedal Minjok app for fried chicken and bossam, a Korean pork dish. The two dishes from two different restaurants had a combined price of 50,000 won (1,380 baht), but the delivery charges accounted for almost a quarter of that – 10,000 won.

“I ended up picking up the food from restaurants myself. I knew the delivery fee was soaring, but this was too much,” he said.

Surveys indicate Korean customers are losing their appetite for food delivery for this and other reasons.

A poll by the Seoul Institute in March found that 52 per cent of Seoul citizens who did not use delivery services in the first quarter of this year cited rising food and delivery costs.

The average cost for food delivery in Seoul in May rose about 12 per cent from March, said the National Council of Consumer Organisations. The cost of delivering a meal for a single person shot up by more than 40 per cent.

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

“Delivery only makes small profits. Orders for a single serving generate hardly any profit margin,” said Kim Sung-hwan, who runs a small American-Chinese restaurant in Mapo-gu, Seoul. He said he would stop using delivery services if he had enough direct orders from customers.

Oh Eung-kyung, who opened a dessert cafe in Seongbuk district last November, said one-third of what customers pay via delivery apps goes to the platforms.

“During the first three months of opening, I only charged customers 2,000 won for each delivery. With that, the profits were not even enough to pay for the labour I put in,” she said. Oh added that she delivers coffee to locations close to her store to save costs.

What customers pay for delivery fees doesn’t cover the cost of hiring a rider. Restaurant owners usually shoulder part of the actual delivery costs in order to attract more customers, on top of paying commissions to the platform for each order placed through the app.

So are delivery platforms raking in profits after hiking fees and commissions? Not really.

Woowa Brothers, the operator of Baedal Minjok, posted 2 trillion won (53.7 billion baht) in revenue in 2021, nearly doubling its 2020 revenue as the prolonged Covid-19 pandemic pushed up demand for food deliveries. But its operating loss soared nearly sevenfold to 75.7 billion won over the same period.

Coupang Eats logged 3.5 billion in operating losses in 2021. Unlisted Yogiyo is not required to disclose earnings but its profit structure closely resembles that of its competitors.

The food delivery market has grown rapidly since the Covid-19 pandemic started. According to Statistics Korea, the food delivery market last year was worth 25.7 trillion won, 2.6 times bigger than in 2019.

Announcing its 2021 earnings in late March, Baedal Minjok said the loss resulted from outsourcing – mainly the expenses it paid to riders for delivery fees. It spent some 574 billion won on outsourcing last year, a huge jump from 181 billion won in 2020.

Increased competition among platforms has created a vicious circle.

The increase in delivery costs was driven by the introduction of single-meal delivery service by Baedal Minjok and Coupang Eats. Handling just one order at a time, riders could deliver individual orders more swiftly, compared to bundled deliveries which see them pick up multiple foods at once and deliver them to multiple locations.

The platforms scurried to recruit delivery agents needed for the new service by granting rewards and incentives, resulting in a huge increase in related costs.

So has the rise of food delivery apps made the lives of delivery workers better?

Pay and conditions have certainly improved, but even here there is still widespread dissatisfaction. Trade unions say that delivery workers are among the least protected workers in the economy. Working mostly on-demand as gig workers, riders are entitled to few if any of the work-related benefits ordinary workers get. Their plea for better protection has sparked debate in South Korea about the protection of workers in the gig economy.

Baedal Minjok and Coupang Eats, after a long tussle with delivery unionists over working conditions such as no insurance coverage for traffic accidents, have decided to hire full-time delivery workers. Unionists are now demanding an increase in the portion of the delivery fee that goes into riders’ pockets per order fulfilled.

The Korea Herald

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