Imagine life without food delivery services – can you live with that?
Using food delivery apps to satisfy hunger may be part of everyday life for many these days, especially for the emerging middle class in Singapore and Southeast Asia (SEA).
The food delivery industry has seen a boom over the past year, partly due to the Covid-19 pandemic, which has accelerated the growth of the food delivery market in the region.
A study by Google and Temasek found that food delivery is common for busy professionals and families alike. Such services "save consumers the inconvenience of damp weather and traffic jams and are particularly popular in metropolitan areas".
According to an industry report from tech venture research firm Momentum Works, SEA's gross product value (GMV) rose 183 percent year over year to $ 11.9 billion in 2020, reflecting this fast-growing industry.
Grab is a major grocery delivery company in SEA and AirAsia is a newcomer to the industry / photo credit: Soyacincau
There are at least six big players in the region: Grab, foodpanda, Gojek, Deliveroo, LineMan and Now.
According to a study by Google and Temasek, the grocery delivery market in the region is set to grow from $ 2 billion in 2018 to an estimated $ 20 billion by 2025.
In Singapore, the GMV for grocery delivery last year was $ 2.4 billion, which was 20 percent of the total value of SEA.
With areas with high growth comes immense competition. This is supported by the appearance of a newcomer: AirAsia.
The company is better known as an aviation company, but has put an emphasis on land-based activities due to the impact of Covid-19 on the aviation sector, which has most of its aircraft on the ground.
In just a few months, AirAsia has aggressively expanded its grocery delivery offering in several countries in SEA, including Singapore. As recently as this month, it announced that it would take over ride-hailing giant Gojek's business in Thailand, valued at a combined $ 50 million.
AirAsia said it will use Gojek's existing store to launch its own super app there, offering grocery deliveries, groceries, beauty items and more.
Busy professionals and families in SEA order their daily meals through grocery delivery apps / Image source: Vulcan Post
The airline is also working with its food concept in other countries. It came out under Airasia Food in Singapore in March of this year after debuting in Malaysia last year.
However, is there room for AirAsia to enter this industry and how can it find leverage as a newcomer among the bigger players? We dive deep into the food delivery industry and see if it has what it takes to survive in this competitive landscape.
The food delivery wars
The food delivery industry in SEA is highly competitive due to its rapid growth and promising prospects.
In just one small city-state like Singapore, for example, there are already many players such as Grab, foodpanda, Deliveroo and Grain.
“For an up-and-coming and increasingly time-conscious middle class, the convenience of having boiling hot food delivered to your front door is very much appreciated. Such consumer behavior has become the norm, especially among families with double incomes, ”says the Google and Temasek report.
Singapore's demographic size may be small – with a population of just two percent that of Indonesia – but it generates 65 percent as much GMV due to favorable conditions to support grocery deliveries like an integrated internet network, high smartphone usage, and high spending on energy.
In overall SEA's grocery delivery services, Grab is currently the leader, ruling five out of six markets in the region including Singapore, Indonesia, Malaysia and Thailand in 2020.
Grab contributed nearly half (49 percent) of the GMV of grocery deliveries in the region last year, at $ 5.9 billion.
Grab took nearly 50 percent of the GMV of grocery delivery in the region in 2020 / Image source: Vulcan Post
One country in the region where Grab didn't get its hands on first place was Vietnam, where Sea Group Now's grocery delivery service is the market leader and Grab is second.
The food app Now belongs to the wealthy technology giant Sea Group, which is also fighting for a leading share in the region.
Sea Group's Now has a first mover advantage. It was already in operation in Vietnam in 2015 before it was taken over by Shopee in 2017.
It has around 80,000 traders on its platform, while the number of traders is not disclosed by Grab.
The Sea Group is also expanding its grocery delivery services in new markets. His e-commerce platform Shopee jumped into the hype with the launch of the grocery vertical ShopeeFood in Indonesia in April. ShopeeFood is also slated to be launched in Malaysia last month.
Thailand, Singapore, and Indonesia are SEA's largest grocery delivery markets / Image source: Vulcan Post
Meanwhile, after selling his Thailand business to AirAsia, Gojek plans to focus on competing with Grab in his native Indonesia. It holds a 47 percent market share in the country.
Gojek's new collaboration with AirAsia (after GoTo was previously formed with Tokopedia) was strategic for Gojek as it faced strong competition from Grab and ShopeeFood in the online transportation and grocery delivery services sector in Indonesia.
Zoom on newcomer AirAsia
AirAsia bought Gojek's ride-hailing and payment business in Thailand this month to accelerate its foray into the Thai non-travel market.
It plans to include Gojek's activities in its own super app, which will be launched there in August.
Gojek has a seven percent share of the Thai grocery delivery market valued at $ 2.8 billion. It holds a smaller market share compared to GrabFood (50 percent), foodpanda (23 percent) and LineMan (20 percent).
Entering the Thai market will be good for AirAsia to learn the knowledge of the industry / Photo credit: airasia food
Despite having a smaller market share, the entry point is a good place to start and the collaboration will be a great way for AirAsia to understand the operations, strategy and mindset of a leading superapp, noted Joshua Chong, Singapore-based fintech analyst at Consulting Firm Capronasia.
He added that Thailand was a good test environment – it was a market with growth potential, a large population, low bank penetration and little digitization of SMEs.
Will AirAsia survive in this competitive market?
To better understand the value that any grocery delivery company can bring to consumers, a projected consumer expectation rating scale was created, supported in part by Momentum Works data.
The review reflects comments from users who have also tried Airasia Food, which helps paint a picture of what AirAsia's overall food delivery services might look like.
Consumer expectations are mainly focused on four main needs: food selection in restaurants and menus, speed of fulfillment, food quality and reliability, and prices.
Momentum Works states that a grocery delivery platform must deliver at least two of the four above in order to be “consistent and better than its competitors”.
If AirAsia is to be successful, it has to improve its customer experience quickly / Image source: Vulcan Post
The rating benchmark showed that Grab scores six out of 10 on pricing, while foodpanda scores eight out of 10. The AirAsia-Gojek connection is rated five out of 10 and the pricing for Air Asia Essen is rated seven out of 10 points. This brings the combined score for AirAsia's food platforms to six out of 10.
According to online reviews, airasia's food delivery fees appear to be lower than other platforms as the fees can be up to S $ 4 cheaper than other platforms.
In terms of delivery reliability, Airasia Food was rated quite low as the reviews said that most orders are late.
Some consumers commented on the delays in Airasia food arrivals, adding that the WhatsApp messaging system and lack of a tracker to update food orders make it difficult for anxious and hungry customers to know when their food is arriving.
Some customers also complain about the early closing time for food orders at 8 p.m. at Airasia-Essen. This surprised some when they wanted to order a late night meal.
Airasia Food is not rated highly for delivery reliability / Image source: Yahoo
Therefore, the combined reliability score was three out of 10. This is a slight improvement from Airasia Food alone as we predict further improvements after AirAsia's deal with Gojek Thailand.
The latter's business is likely to add value to the airline's grocery delivery section by providing some insight into improving processes.
The Verdict: If AirAsia is to be successful in this competition, it has to improve its customer experience quickly as ratings are currently close to the pass or below standards.
According to Momentum Work's evaluation log, such evaluations may mean that the grocery delivery platform will not "stick" with users.
It will have to improve its services while it continues to expand its business, otherwise customers who are already spoiled for choice with the various food delivery apps will switch to the next best supplier.
Focus on unique offers, funding to promote growth plans
Experts suggest that newcomers looking to get into this space have a way to differentiate themselves from the competition by considering offering bespoke services for restaurants with limited resources.
It is also important to have a large war chest to invest in adequate infrastructure to accommodate market disparities and provide technical capabilities.
AirAsia is taking the risk of entering lesser known areas and starting an entirely new business model on such a large scale.
Due to the lack of experience, it has to offer various incentives to differentiate itself positively and / or hire experienced people who are knowledgeable as it competes with other experienced food suppliers in the area.
The industry is capital intensive and AirAsia now appears to be looking for funding to support its growth / Image Credit: The Star
According to AirAsia Group's CEO Tony Fernandes, Gojek Thailand recorded sales of 235.6 million baht ($ 7.2 million) and a net loss of 565.3 baht ($ 17.3 million) last year . This underscores that Gojek was losing money in the country.
It is clear that AirAsia knows it has to produce the big guns to compete in this area. The company plans to raise up to 1 billion ringgit ($ 238.7 million) through a rights issue to meet its working capital needs as its digital businesses grow.
The low cost airline digital arm is also reportedly considering listing in the US through a special purpose vehicle, or SPAC, to raise at least $ 300 million.
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Highlighted Image Source: airasiatravels