Are delivery apps taking an unfair share?

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Are delivery apps taking an unfair share?

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When 38-year-old Moon founded a Korean street food restaurant last year in Bupyeong District, Incheon, her neighbors thought she had hit the jackpot. Raking in roughly 1.5 million won ($1,337) per day, Moon was ready to enjoy the good life.

The reality turned out to be rather different. Despite taking 100 delivery orders per day totaling 45 million won per month, Moon’s operating costs are so high that not much money is left in the cash register at the end of the day.

Every month, Moon pays 5 million won of advertisement and commission fees to three major delivery apps: Baedal Minjok, Yogiyo and Baedaltong. Another 10 million won is paid to the couriers that handle the actual deliveries. Considering general operating costs like ingredient costs and monthly rent, there’s really not much profit left for Moon’s family.

While three family members, including Moon, work 15 hours a day, their hourly pay amounts to only 4,000 won each.

“Now I think of it, delivery apps are a poisoned chalice,” Moon said. “We worked day and night taking only one day off for the past year, but there’s really not much left.”

While on-demand delivery apps have been growing rapidly, there are voices pointing out the side-effects of their accent.

According to data from the Korea National Council of Consumer Organizations, orders made through the country’s three major delivery apps amounted to 5 trillion won last year, which is 10 times larger than the amount ordered in 2013.

Baedal Minjok, a leading player that controls about half the market, saw its revenue double from 84.9 billion won in 2016 to 162.6 billion won last year. During the same period, operating profit skyrocketed from 2.5 billion won to 21.7 billion won.

The apps’ growth led to more Koreans delivering food easily. They also emerged as a way for non-franchise restaurants to promote their brand.

However, restaurant operators feel that the advertising fees and commissions that the apps take are too high.

For instance, the advertising fee for Baedal Minjok’s “Super List” was recently hiked two to three times.

The Super List is an advertising program operated in a closed tender system. The top three store operators that offer the highest bid can stay at the top of the app’s list for a month. The list differs by region and food category such as Korean food and fast food.

“In Bupyeong, shops could win Super List ad opportunities at roughly 400,000 to 500,000 won in July last year, but the price has risen by two to three times that now,” Moon said. “Shops can only raise their bidding price every month in fear that sales will fall once their names are taken down from the top of the list.”

A 25-year-old samgyeopsal, or pork belly, restaurant operator surnamed Jung said shop owners battle to get their names on the Super List even if that means excessive marketing costs because the ad promises sales growth.

“But the ad price jumped too much over the past year,” Jung said. “Baedal Minjok discloses the average prices bid by the winners of the previous month and that essentially becomes the starting bid price for the following month.”

Through the process, Jung claimed the bid price keeps rising.

“I agree that apps contributed largely to expanding the market for take-out restaurants, but this is not essentially promoting mutual growth,” Jung added.

“The problem is that dominant delivery apps are controlling the market with their market share,” said Kwon Soon-jong, who oversees fair trade in the online business market at the Korea Federation of Micro Enterprises. “We need to come up with a solution to limit the advertisement fees that keep rising.”

Baedal Minjok, however, says the tender system is a way to prevent too much competition between store operators since it is a closed tender and the top bidder actually pays the price bid by the second-largest bidder.

“There is only a small pool of store owners that use the Super List,” a spokesperson from Baedal Minjok said. “They are mostly people willing to risk marketing costs to increase sales.”

The spokesperson also added that while on average the advertising costs paid by store operators nationwide increased by 18 percent year on year to 260,000 won in July, their average sales increased by 20 percent during the same period from 5.3 million to 6.4 million won.

After the public criticized Baedal Minjok’s brokerage commission, the app abandoned commissions in 2015 and instead opened up the Super List advertising program. Competitors like Yogiyo are still taking brokerage commissions.


BY KIM YOUNG-JU, KIM JEE-HEE [kim.jeehee@joongang.co.kr]

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