[Inside Chodong] Delivery Industry Must Compete for 'Win-Win Leadership'

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

The atmosphere at the ‘Delivery Platform-Merchant Win-Win Council’ held on the 30th at the Shinhan Bank headquarters in Jung-gu, Seoul, was subdued. This was because the council failed to reach an agreement on commission fees even after nine meetings. The council, launched last July to alleviate the commission burden on small business owners, has been going in circles for three months, yielding no results regarding commission fee reductions. Although they agreed to meet again on the 4th of next month to continue discussions, the likelihood of reaching an agreement is low. The disappointment of small merchants, who had hoped that the burden from using delivery platforms would be somewhat reduced in these already difficult times, is considerable. The government, which pledged to form the council and produce desirable results by October, has also lost face.

The council’s structure required agreement not only among merchant groups but also among delivery applications (apps). Participants pointed out that the significant differences in positions between delivery apps were ultimately the reason for the failure to produce an agreement. In fact, the industry’s top two players, Baedal Minjok and Coupang Eats, clashed throughout the meetings, blaming each other. The main demands from the merchants were fourfold: measures to reduce the burden on merchants such as commission fees, indication of merchant burden items on consumer receipts, changes to delivery platform membership benefit conditions, and sharing of delivery driver location information. The disagreement between Baemin and Coupang Eats was most pronounced on the first and most important issue: measures to reduce commission fee burdens.

Baemin, for the first time at the 6th meeting held on the 8th of this month, proposed a win-win plan that included a reduction in commission rates. This was a ‘differential commission’ plan applying preferential commission rates based on sales. They proposed applying a lower differential commission rate of 2% to 6.8%?below the existing 9.8%?to the bottom 40% of merchants by sales volume. When criticized for lacking effectiveness because the majority of high-sales merchants would see no reduction in burden, Baemin pointed to Coupang Eats. They argued that at least they had presented an actual commission reduction plan, whereas Coupang Eats had been passive in proposing concrete win-win plans, shifting responsibility instead.

Coupang Eats cited losses in the food delivery business as their reason, claiming their position differed from Baemin’s, which was generating huge profits. They took the stance that they would follow Baemin’s lead only reluctantly if Baemin proposed a plan. Facing criticism, Coupang Eats presented a win-win plan at the 8th meeting on the 23rd, lowering the commission rate from 9.8% to 5%. However, while reducing the commission, they included conditions that could increase the delivery cost burden on merchants. Although the commission reduction seemed to meet merchants’ demands, when factoring in delivery costs, the plan was deemed unacceptable.

The differences between delivery apps regarding commission rate structures and delivery fee calculation methods are intertwined with their respective interests and are complex, making them difficult for consumers who only place orders to understand. However, a close look at the market reveals that the core issue is ultimately ‘who takes the lead.’ As a latecomer, Coupang Eats pushed services that cost more than before, from single-delivery to one household to recent free delivery, to expand market share. Baemin responded with services to counter Coupang Eats in order not to lose leadership. Given the delivery app structure where profits can only be made through merchants, pouring money into competition inevitably leads to commission fee increases.

What is overlooked is the obvious fact that without merchants, there is no way to generate profits. Perhaps the top delivery apps have been so absorbed in leadership competition that they have been ‘cutting the goose’s belly.’ Now, with the failure to reach an agreement increasing the possibility of legislative regulation on commission rates, it is time to compete for ‘win-win leadership’ for the sustainability of the market.