SINGAPORE: Deliveroo’s exit from Singapore could gradually translate into higher delivery fees, fewer promotions and steeper commissions for eateries as the market shifts to two major players, although consumers may not feel the impact immediately.
After Deliveroo's last day of service on Mar 4, Grab and Foodpanda will be the two major food delivery platforms in Singapore.
Analysts said the transition is unlikely to cause immediate disruption and may even spark a brief burst of competition as the remaining platforms compete for Deliveroo's merchants and users.
This could lead to lower prices initially, said Associate Professor Seshan Ramaswami, who teaches marketing at Singapore Management University (SMU).
However, the longer-term outlook may be less favourable. Analysts said the market would resemble a duopoly, with Grab expected to command a significantly larger share.
"Both platforms are likely to reduce subsidies, raise delivery fees, and/or increase commissions; for example, slower voucher intensity and higher basket-level fees," National University of Singapore's (NUS) Professor of Marketing Jochen Wirtz said.
NUS Assistant Professor Tiffany Tsai, who is in the Department of Economics, said that if the two continue to compete aggressively on delivery speed, service quality and merchant selection, they may maintain "relatively high promotional intensity and keep fees in check".
"In that case, the overall impact on consumers may be limited," she added.
On whether an eventual monopoly may arise, Prof Wirtz said this was unlikely unless a merger occurred, which would then be scrutinised by competition authorities.
But Asst Prof Tsai said that an effective monopoly may become a concern if one of the remaining competitors is unable to "meaningfully constrain pricing or commission levels over time, or to maintain sufficient scale and a multi-category ecosystem to discipline the largest platform".
Observers said the short-term impact on businesses is expected to be limited, but reduced competition could weaken their bargaining power, potentially leading to higher commission rates sought by platforms.
Similarly, delivery riders who switch platforms could result in stronger competition for orders, Nanyang Technological University's (NTU) Assistant Professor Lee Wee Kiat said.
Over the longer term, reduced platform competition may weaken riders’ bargaining power, with possible shifts away from sign-up bonuses and surge incentives that were previously used to attract and retain riders, said Asst Prof Tsai. Platforms may shift towards more performance-based pay structures, she said.
Deliveroo entered Singapore in 2015 to a highly competitive food delivery landscape.
Analysts CNA spoke to noted the difficulties of Singapore's market for a subscale competitor like Deliveroo.
"Delivery platforms are fundamentally density-driven businesses, where the profitability depends on having high order volume within the same area and time window to keep costs low," said NTU's Asst Prof Lee, who is from the Nanyang Business School's College of Business.
"In a geographically compact and highly competitive market like Singapore, where two platforms already hold significant scale, it is difficult for a smaller player to build and sustain an advantage in the same area."
NUS' Prof Wirtz said the market was highly competitive and promotion-heavy, with compressed margins.
"Riders pick the platform that offers a higher pay, and customers pick the platform that has lower costs. Switching between platforms is just a click away," he said.
Experts pointed out that Grab’s super-app ecosystem - spanning ride-hailing, payments and rewards - allows it to cross-promote across services and generate additional revenue through advertising.
Prof Wirtz pointed out that while Foodpanda was not a super app, it monetised ads and retail media, especially via Pandamart and fast-moving consumer goods brand partnerships.
"Deliveroo had sponsored listings and co-funded promos, but with a smaller audience and fewer surfaces, its ad monetisation was relatively limited," he added.
Last year, DoorDash acquired Deliveroo with a view to growing its market share in Europe.
"Given Deliveroo’s limited growth trajectory in Singapore, it is likely that the market was not considered a strategic priority within DoorDash’s broader global portfolio," said Asst Prof Tsai from NUS.
SMU's Assoc Prof Ramaswami noted that the industry could be entering a slower growth phase following the pandemic-era surge in demand, and may even decline.
Challenges remain even with only two competitors. They still face headwinds in the form of price-sensitive consumers, rising operating costs, as well as the ongoing challenge of maintaining reliable rider supply and service, NTU's Asst Prof Lee said.
Asst Prof Tsai said that the platforms may shift away from simple user acquisition, and that it was no longer sufficient for a platform to maintain market share in food delivery alone.
"Platforms increasingly rely on ecosystem bundling (eg integrating delivery with ride-hailing, payments, subscriptions, or loyalty programmes) to retain users, increase order frequency, and improve overall unit economics," she said.
"In such a mature market, profitability, customer retention, and ecosystem integration become more important than the rapid expansion strategies observed in the earlier growth phase."
Assoc Prof Ramaswami raised the possibility of new entrants who may see an opportunity to differentiate themselves from the two remaining players.
Other delivery services, such as Lalamove, are also in a position to enter the food delivery market, as they have delivery fleets and the logistics infrastructure.
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After Deliveroo's last day of service on Mar 4, Grab and Foodpanda will be the two major food delivery platforms in Singapore.
Analysts said the transition is unlikely to cause immediate disruption and may even spark a brief burst of competition as the remaining platforms compete for Deliveroo's merchants and users.
This could lead to lower prices initially, said Associate Professor Seshan Ramaswami, who teaches marketing at Singapore Management University (SMU).
However, the longer-term outlook may be less favourable. Analysts said the market would resemble a duopoly, with Grab expected to command a significantly larger share.
"Both platforms are likely to reduce subsidies, raise delivery fees, and/or increase commissions; for example, slower voucher intensity and higher basket-level fees," National University of Singapore's (NUS) Professor of Marketing Jochen Wirtz said.
NUS Assistant Professor Tiffany Tsai, who is in the Department of Economics, said that if the two continue to compete aggressively on delivery speed, service quality and merchant selection, they may maintain "relatively high promotional intensity and keep fees in check".
"In that case, the overall impact on consumers may be limited," she added.
On whether an eventual monopoly may arise, Prof Wirtz said this was unlikely unless a merger occurred, which would then be scrutinised by competition authorities.
But Asst Prof Tsai said that an effective monopoly may become a concern if one of the remaining competitors is unable to "meaningfully constrain pricing or commission levels over time, or to maintain sufficient scale and a multi-category ecosystem to discipline the largest platform".
Observers said the short-term impact on businesses is expected to be limited, but reduced competition could weaken their bargaining power, potentially leading to higher commission rates sought by platforms.
Similarly, delivery riders who switch platforms could result in stronger competition for orders, Nanyang Technological University's (NTU) Assistant Professor Lee Wee Kiat said.
Over the longer term, reduced platform competition may weaken riders’ bargaining power, with possible shifts away from sign-up bonuses and surge incentives that were previously used to attract and retain riders, said Asst Prof Tsai. Platforms may shift towards more performance-based pay structures, she said.
Related:
WHY DELIVEROO STRUGGLED
Deliveroo entered Singapore in 2015 to a highly competitive food delivery landscape.
Analysts CNA spoke to noted the difficulties of Singapore's market for a subscale competitor like Deliveroo.
"Delivery platforms are fundamentally density-driven businesses, where the profitability depends on having high order volume within the same area and time window to keep costs low," said NTU's Asst Prof Lee, who is from the Nanyang Business School's College of Business.
"In a geographically compact and highly competitive market like Singapore, where two platforms already hold significant scale, it is difficult for a smaller player to build and sustain an advantage in the same area."
NUS' Prof Wirtz said the market was highly competitive and promotion-heavy, with compressed margins.
"Riders pick the platform that offers a higher pay, and customers pick the platform that has lower costs. Switching between platforms is just a click away," he said.
Experts pointed out that Grab’s super-app ecosystem - spanning ride-hailing, payments and rewards - allows it to cross-promote across services and generate additional revenue through advertising.
Prof Wirtz pointed out that while Foodpanda was not a super app, it monetised ads and retail media, especially via Pandamart and fast-moving consumer goods brand partnerships.
"Deliveroo had sponsored listings and co-funded promos, but with a smaller audience and fewer surfaces, its ad monetisation was relatively limited," he added.
Last year, DoorDash acquired Deliveroo with a view to growing its market share in Europe.
"Given Deliveroo’s limited growth trajectory in Singapore, it is likely that the market was not considered a strategic priority within DoorDash’s broader global portfolio," said Asst Prof Tsai from NUS.
SMU's Assoc Prof Ramaswami noted that the industry could be entering a slower growth phase following the pandemic-era surge in demand, and may even decline.
Challenges remain even with only two competitors. They still face headwinds in the form of price-sensitive consumers, rising operating costs, as well as the ongoing challenge of maintaining reliable rider supply and service, NTU's Asst Prof Lee said.
Asst Prof Tsai said that the platforms may shift away from simple user acquisition, and that it was no longer sufficient for a platform to maintain market share in food delivery alone.
"Platforms increasingly rely on ecosystem bundling (eg integrating delivery with ride-hailing, payments, subscriptions, or loyalty programmes) to retain users, increase order frequency, and improve overall unit economics," she said.
"In such a mature market, profitability, customer retention, and ecosystem integration become more important than the rapid expansion strategies observed in the earlier growth phase."
Assoc Prof Ramaswami raised the possibility of new entrants who may see an opportunity to differentiate themselves from the two remaining players.
Other delivery services, such as Lalamove, are also in a position to enter the food delivery market, as they have delivery fleets and the logistics infrastructure.
Continue reading...