'Commission from 560,000 won to 1,830,000 won' Soaring... Nothing Left Even After Working [Betrayal of Delivery Apps]

①Self-Employed Suffer Losses with Each Sale
Monthly Burden of 5.2 Million Won under New Pricing Plan
Store Owners' Delivery Fee Burden Rises from 2.2 Million to 3.3 Million Won
Percentage-Based Commission... Grows as Sales Increase
"Intention to Grow the Overall Pie Together"

Editor's NoteSince early this year, the three major domestic delivery applications (apps) have been fiercely competing in marketing by promoting 'free delivery.' Consumers respond positively, saying the burden has been eased. However, looking beneath the surface of the free delivery offered by these apps, the situation is not so simple. The enormous costs incurred from free delivery are passed on to store owners through higher commissions and delivery fees, and to delivery workers through reduced wages. Ultimately, this has led to an increase in consumer prices. Asia Economy examines the vicious cycle in which the free delivery competition among domestic delivery apps leads to damages for self-employed business owners, delivery workers, and consumers over a total of six installments, and explores possible solutions.

"We sell more than before, but nothing is left. We work ourselves to death, but only our bodies get tired."

A small, shabby building in Dongdaemun-gu, Seoul. On the first floor, Mr. Bae Geon-woo (36) runs a takeout-only snack bar. Mr. Bae and his wife settled on the snack bar about two years ago after having a young child, having previously worked in cafes and beer pubs. They judged that a snack bar, which requires no separate hall management and is easy for takeout, was perfect for running while taking care of their child. Mr. Bae said, "This neighborhood is pretty much the same everywhere. My wife handled takeout at the store, and I delivered orders myself, so we could save enough on labor costs," adding, "As a result of minimizing expenses over the past two years, our income was quite decent."

Bae Geon-woo (36), who runs a franchise snack bar in Dongdaemun-gu, Seoul, is packing food to be delivered to customers.
[Photo by Jo Yong-jun]

Monthly Burden of 5.13 Million KRW... The More You Sell, The Bigger It Gets

The couple's worries deepened recently as delivery apps like Baemin (Baedal Minjok) and Coupang Eats began launching 'free delivery' services one after another. On March 26, Coupang Eats became the first among the three domestic delivery apps (Baemin, Coupang Eats, Yogiyo) to start free delivery, and on April 1, Baemin, the 'number one' in the domestic delivery app market, joined the free delivery war, turning the situation upside down.

Based on Baedal Minjok, free delivery applies to stores subscribed to Baemin's new pricing plan launched earlier this year, called 'Baemin1 Plus.' This product combines Baemin's previous 'Single Delivery' (delivering to one household at a time) and 'Economical Delivery' (bundling deliveries to multiple households along similar routes) services. It differs significantly in three ways from the fixed-rate plan 'Ultracall,' which store owners mainly used.

First, the fixed cost (8,8000 KRW per unit), known as the 'flag fee,' which was paid monthly under the 'fixed-rate' system, changed to a 'percentage-based' system where a monthly commission fee (7.48%, including VAT) is deducted from total sales. Second, unlike before when store owners decided the 'store-burdened delivery fee' and 'customer-burdened delivery fee' from the total delivery fee, Baemin fixed the delivery fee by region (3,300 KRW in Seoul). Third, previously, store owners delivered short distances themselves, but now Baemin delivery workers handle all deliveries.

These changes significantly affected Mr. Bae and his wife’s situation. Above all, the monthly burden increased sharply under the percentage-based system. Assuming the couple sells 1,000 units of their signature product, the 'Mala Rose Tteokbokki Set' (17,000 KRW), per month, the monthly burden under the previous plan (Ultracall) was 2,825,000 KRW, but it rose to 5,132,600 KRW after switching to the new plan (Baemin Plus). This means an additional monthly burden of 2.3 million KRW.

In particular, the combined fees of card payment commission (3.3%) and commission fee (7.48%) increased more than threefold, from 561,000 KRW to 1,832,600 KRW. The store-burdened delivery fee also rose from 2 million KRW to 3.3 million KRW, an increase of over 1 million KRW. However, the actual amount the couple must bear is expected to be much higher. Previously, Mr. Bae personally delivered about half of all orders, but this is no longer possible under the new plan.

Self-employed business owners describe this as a 'structure where the more you work, the more you lose.' Mr. Bae said, "Before, if I sold 10 million KRW worth of goods, I took home 2 million KRW, but now even if I sell 13 million KRW, I can't take home 2 million KRW," adding, "Clearly, the working hours per day have increased, but the situation has worsened."

Another self-employed business owner, Mr. Lee Woong-gu (40), who runs a franchise hamburger shop in Ulsan, Gyeongnam, said, "Even if I sell 13 million KRW, only about 5.5 million KRW is deposited. After deducting costs like ingredients and rent, there’s not enough left to pay employee salaries," lamenting, "At this rate, all self-employed business owners will inevitably go bankrupt."

‘Extreme Remedy’ After Much Deliberation

The reason delivery apps rushed to launch free delivery is largely due to the sense of crisis that the domestic delivery market has reached a plateau.

According to Statistics Korea, the domestic delivery market, which had grown rapidly every year after COVID-19, recorded a decline for the first time last year. The food delivery transaction amount, which was 26.5939 trillion KRW in 2022, fell to 26.4326 trillion KRW last year.

Experts diagnose free delivery as an 'extreme remedy' that delivery apps introduced after much deliberation. The stagnation of the delivery app market in an era of high inflation was anticipated, and free delivery is seen as a strategic card played in a crisis. It is also analyzed that the real purpose is not merely to compete among delivery apps but to expand the overall size of the domestic delivery app market.

Professor Lee Bong-ui of Seoul National University Law School explained, "If the size of the domestic delivery app market shrinks, no matter how much delivery apps compete, they will eventually cannibalize each other," adding, "The real purpose is to attract more customers through free delivery to enjoy increased sales and simultaneously grow the overall market size so that everyone benefits."

Series Order

<1> Self-employed Business Owners Losing Money the More They Sell
<2> How Free Delivery Works
<3> Cries of Distress Erupting Everywhere
<4> Why They Have No Choice but to Use the 'New Pricing Plan'
<5> Superficial Fair Trade Commission’s Voluntary Regulation
<6> Expert Recommendations: Regulation Measures for Delivery Platforms