Food Delivery Market in Indonesia: Shifting Dynamics

This article is written by Kameswara Natakusumah and was originally published on LinkedIn. Reproduced with the author’s permission here.

Nowadays, it is hard to miss the group of food delivery app couriers, with their smartphones in hand, crowding in front of restaurants and warungs in the big cities.

They are recognisable by their logo-branded totes, backpacks or their reflective jackets in the shades of green of Indonesia’s two largest players in the online food delivery market – Grab and Go-Jek.

Both apps are feeding the insatiable appetite of Indonesians, who are increasingly getting their meals delivered to their doorsteps. Most people I know have both Grab and Go-Jek in their mobile phones. “It is simple, cheap and I do not have to run around under the sun or stuck in traffic jam anymore,” said a fresh graduate girl in our office, who orders on average three times a day – morning coffee, lunch and afternoon tea.

Indeed, the two most valued unicorns in Southeast Asia are vying to dominate a piece of the online food delivery market, which accounts for just 1.3 per cent of the total food market, compared with 8 per cent in the US and about 12 per cent in China, according to data from Euromonitor.

Amid the rising competition, both Grab and Go-Jek are investing heavily in building rewards and loyalty programmes to deepen customer engagement and retention, while at the same time, dishing out discounts and promos to ramp up food orders.

Consumers now have a quicker, hassle-free option to get their meals. The rapid development of cashless mobile payments is also boosting the convenience of using food delivery apps.

The evolution of the industry is really rapid for a veteran tech observer like me.

But it looks like Grab, which launched its food delivery arm GrabFood across Southeast Asia only last year and already outpacing its competitors, is poised to get a bigger bite of the food delivery market in Indonesia.

How did we come to where we are now in Indonesia?

Shifting market landscape & Grab’s catch-up

A little more than a year ago, GrabFood’s presence was minimal, while Go-Jek was dominating. A friend of mine who used to head the regional operations of a large global food delivery player estimated that back then, Go-Jek had 95% of platform delivery market.  “It is quite hard to break through this,” he remarked.

But over the past year, GrabFood, has been able to break Go-Jek’s dominance. A straw poll conducted amongst my friends showed an even split down the middle.  My friends who are running restaurant and coffee chains tell me that GrabFood’s order volumes are on par with Go-Jek’s GoFood, and still growing.

The numbers seem to back those claims. According to market research done by Kantar, GrabFood is the #1 most often used food delivery platform (see footnote *1) in 6 Southeast Asian countries – Indonesia, Singapore, Malaysia, the Philippines, Thailand, and Vietnam.

Grab is also reporting strong numbers. From June 2018 and June 2019, GrabFood’s gross merchandise value (GMV) in Southeast Asia grew 900%. In the first half of 2019 alone, GrabFood’s GMV in Indonesia tripled.

Grab is buoyant, saying it is on track to become the largest food delivery service in Indonesia. Grab has said the significant growth of GrabFood in Indonesia goes beyond Jakarta and are in the outer cities of Bandung, Surabaya, Medan, etc.

Go-Jek is not letting up. Citing a Nielsen Singapore research, Go-Jek recently claimed that its GoFood service is leading in Indonesia’s food delivery market, garnering 75% of the market share.

Such leadership claims and posturing are part and parcel of the food fight is intensifying in Indonesia. But Grab seems to have evolved from an upstart in the food delivery scene to a serious contender to win the title of Food King in Indonesia, pipping incumbent Go-Jek.

Grab is entrenching itself in Indonesia as a ‘local’ food delivery service that is delivering more value to the wider society. Recently, the firm announced that it was doubling down on its commitment in Indonesia, after a meeting with President Jokowi in July. Part of its efforts would be forming dual headquarters in Indonesia, after Singapore, that will focus on growing its online food delivery business.

This has allowed Grab to spearhead innovations such as the cloud kitchen concept in Indonesia. First launched in Jakarta, GrabFood has gone on to open more than 10 of such delivery-only kitchens, dubbed GrabKitchen, across Indonesia.

What is fuelling the rapid growth of GrabFood in Indonesia? My sense is the wide assortment of food options that people can choose – from quick-service restaurants such as HokBen, Bakmi GM, and the local food you can find in a warung.

Also powering the growth is Grab’s very successful ride-hailing business which has already surpassed its competitors. A recent study by ABI research put Grab’s ride-hailing market share in Indonesia to be 63.6%, ahead of Go-Jek.

More people are also spending more time and sticking with Grab for their everyday needs. According to the company, 41% of its users use more than one service in the Grab App. Hence, it is not surprising that Grab’s food market share is widening so quickly.

Viable Business

Globally, while Food Delivery market is hotly contested everywhere from London to Sao Paulo, there is still some scepticism whether the business model will ever be viable or profitable. While UberEats is the fastest growing segment for Uber, its economics is still quite negative; and German food delivery startup Delivery Hero in Europe, which owns FoodPanda in Singapore, is consistently showing negative EBITDA, amid revenue growths.

But Grab is not an Uber or a Delivery Hero. Today, it is a Super App that provides most of the services we need in our daily lives – rides, food, payments, video content, house cleaning, among other things. I would liken Grab more to Meituan Dianping, a Chinese giant which focuses a lot of food delivery, amongst other local services. Its high-growth story shows very promising signs that the super app business model can work.

When it IPO’ed in Hong Kong about a year ago, many people were sceptical whether it would even be profitable – that sentiment was reflected in the downward trend in stock price during the first few months after listing (please refer to chart).

However, the company has shown a profit in Q2 2019, which led to a surge of its share price. It is able to, through a series of strategic moves and sound execution, fend off a strong challenge from Chinese e-commerce juggernaut Alibaba and its food delivery unit Ele.me, to create a deep moat around its offerings. Hence the profit follows.

As the Super App gets bigger, consumers rely more on the app to find new places to eat, shop or watch a movie. Merchants need visibility in the app to drive sales. And once one restaurant starts doing it, rivals have to as well.

Super Apps have since transformed the ride-hailing industry – now the second-largest sector in the region’s Internet economy – with food delivery as their main source of growth and profitability.

What’s next?

Grab and Go-Jek are aiming to recreate the success of Meituan, even creating more revenues (with ride-hailing, payment and other businesses Meituan does not have). The competition between these two Unicorns has left no space for new entrants I would think.

As mentioned above, food is a more complex business than ride-hailing, and allows a combination of multi-prone strategies and sound execution to win the game.

Grab is doing likewise. With the strong backing from its strategic investor SoftBank, Grab is investing in infrastructure, technology, promotions to boost its services and promote the cross usage of its services on its platform. This has allowed Grab to build up a strong online-to-offline ecosystem transaction flow, a substantial moat that is hard to replicate.

Whilst Grab is active in six countries, it has been able to curate it’s service quality and delivery efficiency for Indonesia as mentioned above. And if GrabFood maintains the current momentum, it would probably overtake Go-Jek’s GoFood very soon.

With the latest Google-Temasek e-Conomy Report finding that the value of the food delivery sector in SEA has more than doubled year on year, and is projected to cross USD20billion by 2025.

There is still much room for growth in the online food delivery market.