29.09.2020, 06:34

Why is Sea quietly running a food delivery business in Vietnam?

On August 12 hundreds of bikers in Hanoi who work for food delivery platform
protested at the headquarters of Foody Corporation, the Vietnamese tech firm that runs the service.

Local media reports say that these drivers were unhappy with Now’s new reward scheme, which raises the productivity bar in order for them to earn incentives. Foody, however, says the changes also increase the maximum bonuses and are aimed at improving customer experience.

Why is Sea quietly running a food delivery business in Vietnam?

Now and GrabBike drivers park on Hanoi’s Dao Tan Street. /Photo credit: 123rf.

In recent years, similar protests by Grab and Gojek drivers have broken out in the country’s metro areas. These platforms have to lure users with attractive discounts and riders with bonus points, so tension is inevitable when these subsidies are scaled back.

Now has become a popular option for food delivery in Vietnam, going toe-to-toe with Grab. What’s less apparent is that it’s part of Singapore-based internet firm Sea. The regional giant acquired Foody, Now’s parent firm for
US$64 million
in 2017. It’s an impressive amount that many local startups can only dream of.

Foody has been a major acquisition for the New York-listed company, which doesn’t buy a lot of startups in the first place. However, Sea has been unwaveringly quiet about its ownership of a food delivery business in Vietnam.

Ecommerce and gaming have been Sea’s strong suits. So the question is, what role can food delivery play in its plan for Southeast Asia? The answer lies in Sea’s next big bet: payments.

The Foody story

Foody is considered Vietnam’s Yelp and has been around for nearly a decade. Founded in 2012 by Minh Dang, the company started out as a food recommendation and restaurant listing site. (See
Tech in Asia’s
past coverage of Foody’s
here .)

In 2015 Foody morphed into a transactional platform for food delivery and restaurant reservations after funding rounds from Garena and Tiger Global Management. The same year, it launched an on-demand service app called DeliveryNow, which was later rebranded to Now.

At the time, doing a food delivery platform in Vietnam was considered a brave move. Ordering food online was seen as a luxury service for largely the expat communities in Hanoi and Ho Chi Minh City.

But it was a step in the right direction for Foody as its website was performing well in connecting users with restaurant owners. When the startup bagged its series C from Tiger Global Management, it already reportedly had a listing of 115000 restaurants.

But Dang wasn’t planning to stop at food delivery: He envisioned building an ecosystem for Foody to increase user stickiness. This all happened even before Grab and Gojek took Southeast Asia by storm with their super-app ambitions.

Main services under Foody: a restaurant-listing site, food delivery, table booking, and POS system

His vision caught the eye of Sea, which invested in Foody’s series B round.
DealStreetAsia   reported
back then that Sea’s entry into the food space was aimed at providing more use cases for its payment platform AirPay. But more than that, Foody, particularly its flagship platform Now, could potentially expand Sea’s offerings and user base in Southeast Asia.

Of course, as we all know, Grab and Gojek have quickly grabbed a bite of Southeast Asia’s food delivery space. And that’s clearly evident in Vietnam, where Sea’s Now has been facing fierce competition.

Tough market

The size of Vietnam’s food delivery market is relatively small. The country’s revenue in online food delivery is expected to reach US$302 million in 2020 according to an estimate on Statista. This is higher than Thailand (US$275 million), but far behind Indonesia (US$1.9 billion) and more than half of Singapore (US$464 million).

Food delivery is a thin-margin space that puts a premium on optimization. Even some of the world’s biggest players like UberEats and DeliveryHero have not achieved profitability. As
Tech in Asia
pointed out in this in-depth
report , the key is to achieve high order volumes in dense urban areas while keeping costs down.

The market in Vietnam was too early back then and very hard to scale.

At present, the demand in Vietnam comes largely from Hanoi and Ho Chi Minh City, which have a combined population of about 17 million. A
Google-led report
on Southeast Asia’s digital economy forecasts an explosion in interest in food delivery among Southeast Asian countries. In the last four years, queries for online food delivery brands have grown more than 13x in Indonesia, 9x in the Philippines, and 8x in Thailand, but only 2x in Vietnam, according to Google Trends.

In 2012 the demand in Vietnam was so low that some players had to call it quits. In 2015 Rocket Internet
cashed out
of the country only after three years, a year before it also exited Indonesia. Rocket Internet sold Foodpanda to rival Vietnammm for a reported amount of only US$500000.

“The market in Vietnam was too early back then and very hard to scale,” explains Jianggan Li, founder of venture builder Momentum Works and a former managing director of Foodpanda in Singapore. “The basket sizes in Indonesia and Vietnam were much smaller than Singapore,” he adds, and Rocket wasn’t patient enough “to make the operations more refined and efficient.”

The market also forced out Eat.vn, which was operated by local tech company VCCorp. By 2017 it was safe to say that Foody’s Now was in a two-horse race with Vietnammm, which was previously owned by Takeaway.com.

Grab’s arrival, however, ushered in drastic changes.

Battle of Asian heavyweights

While Vietnammm was an asset-light platform that let restaurants handle deliveries, Grab competes head-on with Now. Launched in 2018 GrabFood quickly captured 18 of Vietnam’s cities and provinces, capitalizing on its network of 190000 drivers and bikers. It also began offering cashless payment options after partnering with local e-wallet Moca that same year.

Grab and Now drivers queue to order food in Hanoi. /Photo credit: 123rf

Nguyen Thai Hai Van, Grab Vietnam’s managing director since January, said in a written statement to
Tech in Asia
that the number of merchants that were onboarded to the platform in Q22020 has tripled compared to the previous quarter. Grab has seen “strong organic conversion of existing transport customers to food delivery,” she adds.

Grab has a bullish view of Vietnam, and it has certainly transformed how locals commute on a daily basis. Last year, the company announced
an investment of US$500 million
specifically for the country, considered its second most important market after Indonesia. That was well before Covid-19 struck, however.

But unlike in Indonesia, Grab didn’t have to compete with Gojek right out of the gate in Vietnam. As such, it’s moving fast to maximize that advantage: GrabFood is available in more areas compared to Now, which only covers 16 cities and provinces.

In response to Covid-19 Grab also quickly introduced GrabMart and GrabAssistant in the country – services that Now offered way before the pandemic. On the flip side, Now’s attempt to enter Grab’s lane has faltered. It rolled out ride-hailing service NowMoto at the end of 2018 but that has ceased to exist.

Still, Foody remains optimistic about its first-mover advantage. A Foody spokesperson told
Tech in Asia
that the food delivery market in Vietnam has grown “exponentially.” When it comes to leveraging Sea’s ecosystem, the company added that AirPay has been integrated “seamlessly” into NowFood. Shopee users can also place orders via NowFood right from the Shopee app.

Now doesn’t just have Grab to contend with, as Gojek is making another push in Vietnam. Following its recent
fresh capital
of US$1.2 billion, Gojek has abandoned its multibrand approach in
and Thailand in favor of a single identity, unifying with its parent firm in Indonesia.

Gojek Vietnam was previously known as GoViet. /Photo credit: Gojek Vietnam

Gojek’s announcement in Vietnam put an emphasis on food delivery. The media statement talked about new features like an option for users to pin favorite dishes within GoFood, image sharing between customers and riders, and support for multiple orders across services within the Gojek ecosystem.

Gojek claims to have 150000 drivers and 80000 food merchants in Hanoi and Ho Chi Minh City. However, it hasn’t secured a partnership with an e-wallet, which means that people using Gojek’s services have to pay in cash. It also hasn’t launched a point-of-sales app for merchants.

When asked about progress on those fronts, Gojek’s newly appointed general manager in Vietnam, Phung Tuan Duc, said in a written statement that the company is focusing on “a smooth and immediate transition” to the new platform.

Another notable force is Baemin, which entered Vietnam in May 2019 and promptly snapped up Vietnammm. Baemin is part of Woowa Brothers, a South Korean tech unicorn that was bought out by DeliveryHero in
a $US4 billion deal
announced last December.

Baemin promoted its recent rollout in Hanoi. /Photo credit: Baemin.

Baemin started out in Ho Chi Minh City and only  expanded to Hanoi
in June this year. An industry insider said the South Korean company is opting for a “slow but steady way” to challenge the dominance of Grab and Now.

That means focusing on serving Hanoi and Ho Chi Minh City’s inner districts, where density means better optimization and the population has a higher appetite for food delivery. Typically, Baemin users can only order from merchants within a 5 kilometer radius from their location.

The industry source adds: “Why did Foodpanda fail? At the time, Vietnam was not ready for food delivery. Now, it’s good enough if a platform can capture Hanoi and Ho Chi Minh City, with a population close to 20 million and an increase in disposable income.”

Like other places affected by Covid-19 food merchants and restaurant owners in Vietnam have been rushing toward these platforms despite hefty commissions ranging from 25% to 35%, which mostly go towards delivery costs.

Quynh Anh, who heads an
online community
that has about 2000 members from the food and beverage industry, said complaints about these apps often center around high commission fees and lack of access to customers’ data. However, “using them is a must [for restaurants], particularly for branding and acquiring new customers.”

Two local F&B merchants who spoke to
Tech in Asia
echoed these complaints.

Why does Sea want to do food delivery?

A former Now manager told
Tech in Asia
that the platform’s “explosive growth” mostly happened before it was acquired by Sea. Now that the food delivery market is getting more competitive, “it’s definitely not easy to go from 200000 orders a day to 300000” he observes. Sea’s backing, however, had an immediate improvement on Foody’s technical capabilities. In the old days, Now would crash if it was handling too many orders.

There’s no winner yet in this market, which is one reason why Baemin joined the fray. In recent months, Now and Baemin have gained more active users, though Baemin usage is about half of Now’s, according to a third-party estimate. GrabFood is integrated into the main Grab app, so it’s hard to gauge its traction.

Now isn’t clearly pulling ahead of the pack despite its early entrance in the market. A
recent survey
by online market research firm Q&Me shows that 79% of respondents cited GrabFood as the most popular food delivery app while 56% chose Now.

There’s certainly room for Sea to make a bigger mark. It has done so in the past: Foody’s 2018 filings on a government portal indicate that Sea owns 99% of the business instead of the 84% in 2017 meaning more money was injected into the Vietnam-based entity.

Unlike Grab and Gojek, Sea is in an enviable position as it has US$343 billion in cash and can stem its losses, according to financial results released on August 18.

Sea has been all about gaming and ecommerce. /Photo credit: Sea

Even so, can it work up an appetite to invest more in Foody?

Angus Mackintosh of CrossASEAN Research, an insight provider on Smartkarma, told
Tech in Asia
that Sea has the capacity to handle a business such as Foody because it’s relatively small compared to Sea’s current market capitalization of nearly US$70 billion.

For now, the group has done very well with Shopee in terms of market share, and it has “the ability to keep on providing discounts because of the money being generated in the gaming business,” he says.

The problem, however, is that Foody could become
another cash-burning endeavor , especially if it expands abroad and faces well-entrenched rivals. Sea already has two expensive long-term bets in its offing: Shopee and SeaMoney. Adding another might prove to be a distraction.

In the past, Foody had apparently forayed into
but things didn’t work out, with media reports suggesting that the company “failed to monetize” in the country.

It’s not about lumping everything together in one app and just hoping that users will somehow use all of those.

Just focusing on Vietnam may not be a bad idea. After all, food delivery is a hyperlocal business, and Foody can keep costs manageable by concentrating its resources in one country. And besides, the platform doesn’t really need to do deliveries in multiple markets to serve its apparent purpose of being another use case for SeaMoney.

Yanjun Wang, Sea Group’s chief corporate officer, has reiterated the importance of SeaMoney in the firm’s
latest earnings call . She stressed that Sea has the “largest online user case” for online payments, stemming from ecommerce and digital entertainment.

Can Sea succeed in payments despite not being a “super app” like Grab or Gojek?

Wang thinks it’s possible. “It’s not about lumping everything together in one app and just hoping that users will somehow use all of those. You need to make sure that from a user experience, operational, business model perspective, everything makes sense together and […] can create synergies across different functionalities. And that’s what we are very much focused on,” she explains.

In its
IPO prospectus , Sea stated its purpose for the Vietnam acquisition: to “further expand our service offerings and user base in GSEA, and strengthens our ecosystem of use cases for AirPay.”

While the battle for food delivery supremacy between Grab and Sea may well be restricted to Vietnam, a larger war for fintech dominance may be brewing.