This commentary was originally published on CNA.
Whether you’re a Grab user or not, a series of developments related to the company has become the talk of the town – from the proposed acquisition of taxi operator Trans-cab to rumoured buyout talks of foodpanda’s Southeast Asia business.
The top question for many is, of course: What does all this mean for consumers?
At first blush, it might seem like these acquisition decisions are connected – the self-styled “super-app” trying to increase market share by gobbling up competitors in the ride-hailing and food delivery sectors. In theory, decreased competition could lead to higher prices.
On Oct 16, Singapore’s competition watchdog said it was “unable to conclude” that a merger between Grab and Trans-cab, the country’s third-largest taxi company, would not give rise to competition concerns.
Industry insiders and consumers alike are speculating on Grab’s broader objectives. Southeast Asia’s tech landscape has been in constant flux in the last few years. Most platform companies are now pushing for profitability over hypergrowth, driven by investor pressure and macroeconomic uncertainties.
Trans-cab fleet helps secure supply
On closer examination, Grab’s potential acquisitions appear to be disparate business considerations addressing distinct challenges.
The Trans-cab deal is a direct response to the supply challenges in the Singapore ride-hailing market. Earlier media reports cited Land Transport Authority (LTA) figures of about 63,000 active drivers (taxi drivers and private hire) in the first half of 2023 – higher than the 55,000 at the end of 2022, but still lower than the 69,000 active drivers before the pandemic.
Grab had mentioned supply shortages in a few earnings calls previously and has been taking steps to address this. For example, earlier this year, it had also re-introduced carpooling service GrabShare in Singapore and the Philippines.
Seen in this frame, Grab’s acquisition of a taxi company is an attempt to secure a reliable supply base of drivers and vehicles. It seems to be a win-win partnership for both sides.
Grab intends to digitalise Trans-cab’s booking services so that taxi drivers receive bookings from both the Grab platform as well as Trans-cab’s existing call centre. This will increase productivity (and earnings) for taxi drivers that used to wait mainly for customers via street hail or the call centre. And for Grab, the increased supply of vehicles and full-time drivers will alleviate some of the pent-up customer demand.
How about concerns of a potential monopoly? ComfortDelGro remains a formidable competitor for Grab in Singapore, with 64 per cent market share compared to Trans-cab’s 15 per cent. The LTA’s point-to-point transport regulatory framework also does not allow ride-hail operators to prevent drivers from using other platforms.
If ComfortDelGro could make significant enhancement of its technology, particularly in mapping and search, it would strengthen its competitive position significantly.
FoodPanda exit – buy out or shut down?
In food delivery, the focus of leading players has definitely shifted towards profitability.
Although Delivery Hero announced in August that it had achieved positive adjusted profit before interest, tax, depreciation and amortisation (EBITDA) on a group level in the first half of 2023, it had hinted in earnings calls that it would exit markets where it did not have a clear lead.
There have been rumours of Delivery Hero exiting foodpanda in Southeast Asia since last year. Based on the Momentum Works Apples to Apples analysis, Delivery Hero Southeast Asia collectively contributes less than half of the gross merchandise value that Korea generates through its subsidiary Woowa Brothers. In addition, Delivery Hero has also been grappling with a diminishing market share in the region and a much weaker cash position compared to Grab.
In this context, it is hard to see how Delivery Hero could turn this around and make Southeast Asia meaningful and worthwhile for it. If the decision is indeed to exit Southeast Asia, the only choices are finding a buyer or shutting down.
Shutting down is not an ideal outcome for everyone involved – employees, F&B establishments, riders and customers. There was chaos when Deliveroo suddenly announced on Nov 16, 2022 it would exit Australia immediately, shocking restaurants and customers with unfulfilled orders and sent riders scrambling for jobs.
Things could only be more complicated in Southeast Asia’s fragmented markets. Delivery Hero itself would need to go through the painful process of liquidating its multitude of entities, which could take very long and be very costly.
While Grab has not acknowledged talks with Delivery Hero, it’s hard to see any other party with meaningful business logic and experience to take over foodpanda.
Unlike the Grab-Trans-cab deal – which is estimated to be around S$100 million (US$75 million) for 2,500 vehicles, vehicle workshops and fuel pump operations – the question is what Grab really gains from buying foodpanda for a rumoured €1 billion (US$1.06 billion) when it has its own established food delivery network and could simply wait to fill the space left by foodpanda’s exit.
Consumers can always vote with their fleet
At this juncture, Grab’s game plan seems clear: Pursue discipline and profitability. Boring, but necessary.
It could still go either way for consumers of both ride hailing and food delivery arms. On one hand, consolidation could lead to greater efficiency of scale and the money used for incentives could be now used for streamlined services, better integration of offerings, and even shorter waiting times.
On the other hand, reduced competition could mean reduced benefits for the end-users, such as fewer discounts or incentives, even potentially higher prices. But this isn’t necessarily inevitable.
At the end of the day, consumers can always vote with their feet – and use another platform or eschew them altogether. Merchants and drivers, without margins, could decamp as well.
Just look at the example of Meituan, which has more than 70 per cent of food delivery service market share in China. It has been under constant regulatory scrutiny to ensure that platform companies maintain a healthy ecosystem for customers, merchants and gig workers.
But even without regulators, Meituan actually found it hard to raise commissions and prices in China. Despite the thin margins, Meituan relies on its food delivery service to maintain a large and loyal consumer base, and monetise other high margin businesses such as its online travel and advertising arms. Grab could do the same, albeit still in earlier stages.
Incentive to maintain competitive ecosystem
In sum, as Grab navigates its way through Southeast Asia’s dynamic tech market, it’s essential for both industry watchers and consumers to understand the implications of these moves.
In highly competitive industries, companies will need to find their “blue ocean” – a new market with little competition – through their leadership, people or product. This can be either by providing services or products at low cost, high quality, speed of delivery or availability. No one company can provide all four value propositions.
For Grab, it seems that it has chosen to build its economies of scale in industries where profit margins are small. While Grab’s choices seem strategically sound, it remains to be seen what value proposition they want to focus on, and how this will influence the everyday user’s experience.
However, one thing is for sure: Grab has every incentive to keep merchants, riders and consumers on the system, and thus maintain a healthy and competitive ecosystem in Southeast Asia.
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Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].
