[Inside Chodong] The Other Side of the Free Delivery Competition

Kim Cheol-hyun, Deputy Director of the Bio Startup and Venture Department

"By eliminating delivery fees that were hurdles in ordering food delivery, restaurant owners can increase sales without additional cost burdens." This is the explanation given by delivery platform companies as they declare free delivery. However, about a month after the free delivery competition began, what is heard are complaints from restaurant owners saying, "Free delivery has actually made things harder." The expectations of the platforms and the reality accepted by restaurant owners differ regarding free delivery.

Let's trace back to why the free delivery competition started. The spark that ignited the free delivery competition shaking the delivery industry last month was Coupang Eats. Starting March 26, Coupang Eats began offering unlimited free delivery service to Coupang Wow members. Not to be outdone, Baedal Minjok changed its Alttul Delivery, which optimizes bundled deliveries based on routes, to free starting last month on the 1st. Four days later, Yogiyo joined the competition, announcing free delivery not only for bundled deliveries but also for single-house deliveries. Until last year, delivery fees were expensive, causing users to leave delivery apps in droves, but it took only about ten days for the controversial delivery fees to disappear. The rapid elimination of delivery fees clearly shows the competitive situation in this market. Despite a year of discount promotion competition followed by free delivery competition, the number of delivery app users remains around 22 to 23 million. Changes in each company's user base have occurred by stealing customers from competitors. To survive in the competition, companies cannot avoid following any policy.

However, restaurant owners, who are one pillar of the delivery ecosystem, are not pleased with this competition. From the outside, there appears to be no additional burden on restaurant owners due to free delivery. Delivery fees are shared between restaurants and consumers, and the current free delivery structure is where the platform pays what consumers used to pay. The expectation that sales will increase due to more delivery orders from free delivery comes from this. But free delivery applies only to ‘self-delivery,’ where the platform is responsible for both order mediation and delivery. It does not apply to ‘store delivery,’ where orders are received through the platform but delivery is done by the restaurant or a delivery agency. It is practically difficult for the platform to bear delivery fees when only mediating orders. From the perspective of restaurant owners doing store delivery, they can only feel that customers have decreased as users move to free delivery. In the industry, Baemin’s ratio of store delivery to self-delivery is estimated to be about 7 to 3. On internet cafes where self-employed people gather, posts complaining about free delivery and lamenting sales declines continue to appear.

Consumers welcome the ability to use delivery services for free without paying what they used to pay immediately. However, it is uncertain how long the actual ‘free’ will last. Considering the platform’s need to make a profit, it is difficult to sustain the current free delivery, which is achieved through marketing cost investment, forever. The 58% increase in the Wow membership fee, which is the target of Coupang Eats’ free delivery, ultimately shows that consumers also have to open their wallets. Baemin is also preparing to launch a subscription service called ‘Baemin Club,’ which allows unlimited discounts on delivery tips.

The competition occurring in the delivery ecosystem is complex and multifaceted. There is the platform’s position, which must engage in cutthroat competition to survive, and the restaurant owners’ situation, who are forced to endure sales declines in the middle of it. It is difficult to understand the whole picture from only one side’s claims. However, the clear fact is that, although it is not easy to satisfy all ecosystem participants including consumers, restaurant owners, and riders, a way to coexist at some level must be found. If the current free delivery competition has focused on expanding consumer benefits, the next competition should be for the growth of restaurant owners.

This content was produced with the assistance of AI translation services.