Delivery app fees tough to swallow

Lee Chang-won, 43, runs a small chicken restaurant in Pungnap-dong, in southeastern Seoul. While the business struggled earlier this year due to an avian flu outbreak, another burden weighs on him: the rising cost of smartphone delivery app services.

“On top of the struggles [we went through] from the avian flu, the marketing of these delivery apps seem to have overstepped their boundaries,” Lee said.

His chicken restaurant is listed on three delivery apps, including the most popular, Baedal Minjok, which has 10 million downloads and an average of 1.5 million visitors a month.

The basic rate is 33,000 won ($31.72) a month, which includes being listed on the app. In addition, the restaurant must pay an additional 13 percent of each order as a commission fee.

“The margin [from selling a chicken] is 30 percent,” Lee said. “The app takes more than one third of that.”

Even though his restaurant is registered with three delivery apps, he still uses flyers. Two-thirds of his earnings go for marketing and promotion.

“I can’t even think of signing up for other delivery apps that charge 20 percent commission,” Lee added.

“Restaurants that offer delivery service normally spend 10 percent of their revenue or less on marketing, but major delivery apps are asking for more,” said Son Dong-min of the Korea Delivery Food Association (KDFA).

Delivery apps are popular marketing tools for small-restaurant owners like Lee, as many young singles and newlyweds frequently access the apps to place delivery orders for dinner or late night snacks.

Apps are typically less costly than printing flyers or advertising in a neighborhood guidebook.

Delivery apps have been popping up since the first smartphone was introduced in Korea in 2009. Total downloads of Baedal Minjok, Yogiyo and Baedaltong as of March were more than 210 million.

The basic rates for listing on a delivery app are about 30,000 won a month, but higher service charges are a problem for many small restaurants. While the basic advertising rate has been stable, several apps have introduced advanced services that cost nearly twice as much.

Restaurant owners say that although it looks as though they have other choices, they really don’t.

Restaurants that subscribe to the pricier services get their names bumped up to the top of lists. This allows better exposure and produces more revenue.

High-level subscribers also have access to immediate payment services that allow customers to pay through the app without the delivery person having to go through the hassle of carrying a credit card reader. Such convenience also attracts more customers, restaurant owners say. Some apps also accept credit card points in payment.

“Consumers usually just flip through the first two pages when choosing a restaurant,” said a small restaurant owner who asked for anonymity. “Under such circumstances, who wants their business ruined by being pushed far down on the list?”

Baedal Minjok takes 13.75 percent of the sale price, credit card fees and taxes as commission. Baedaltong, another popular delivery app charges 8 percent to 11 percent. Yogiyo would not say how much it charges, but businesses say the commission rate is about 20 percent.

Delivery app companies claim their commission fees are not excessive. It is a process of offline advertising shifting to online, they say. Local businesses can benefit from such service and earn greater profits thanks to the apps. Companies also argue that joining is totally up to business owners; if they don’t see the benefit of the service, they don’t have to join.

Such arguments generated greater outrage among restaurant owners.

“They established an unavoidable intermediate structure in distribution and are taking advantage of it. They neglect local business owners who are suffering in the current recession,” said Mr. Park, 46, who sells jokbal (boiled pig’s feet) in Gyeonggi.

“Because we have to pay the commission fee and can’t increase the food price, more businesses will have to use cheaper ingredients or reduce portions to survive. Eventually, it is the consumers who lose.”

Meanwhile, the KDFA is trying to lower delivery app commission rates for small businesses. The association plans to launch its own delivery app and set commission fees below 8 percent starting in June.

“As the system becomes more automated and sales increase,” said Baedal Minjok and Baedaltong in a statement. “We can lower the commission fee.”

BY MOON BYUNG-JOO and KIM HAE-YOON [haeyoonk1311@joongang.co.kr]