Delivery apps struggle as users say no to high fees

Industry

Published: 03 Jun. 2023, 07:00

Delivery apps struggle as users say no to high fees

A rider parks in front of a restaurant in Seoul to pick up food on February 21, 2023. [NEWS1]

After enjoying explosive growth during the Covid-19 pandemic, food delivery apps are facing dwindling users as people balk at rising delivery fees.

Sales of online food deliveries in April dropped 1.4 percent on year to 2.1 trillion won ($1.6 billion), according to the latest data from Statistics Korea. The monthly figure has posted on-year declines for 10 consecutive months. The figure in March plummeted 12.9 percent on year to 2.1 trillion won, a record-high decline since Statistics Korea began compiling data regarding the category in 2017.

Delivery demand has fallen as Korea enters Covid's endemic phase and people no longer must remain indoors. Hikes in food prices and delivery fees have hurt demand as well. April's monthly active users (MAU) for Baedal Minjok (Baemin) fell 3.1 percent on year to 19.55 million. Yogiyo's MAU dropped 16 percent to 6.68 million, while Coupang Eats's figure plummeted 40 percent to 3.03 million, according to mobile data analysis company Mobile Index.

"I don't order that much food from delivery apps anymore since the social distancing measures were lifted," said 28-year-old Kim Jeh-hoo, who lives alone. "Since I'm not confined indoors, I go out to dine with my friends and acquaintances. And even when I do order from an app, I prefer to go to the restaurants to pick up the food myself. Delivery fees have risen too high for me to spend on them."

In a survey of 1,687 delivery app users, nearly one-third said they use the apps less compared to last year, according to a 2023 report on delivery service trends by market tracker Open Survey. Of the 485 respondents who are using their apps less, the overwhelming majority — 83.9 percent — said the reason lies in expensive delivery fees.

Delivery fees, which can range from the basic fee of 2,000 won to up to 10,000 won, may account for even half of the food price consumers ordered, or even more, with extra fees charged depending on distance or weather conditions.

In a survey of 1,267 people, 68.6 percent said an appropriate delivery fee was 2,000 won, while 23 percent said a fee between 2,500 won and 3,000 won was appropriate, according to Korea Agro-Fisheries & Food Trade Corporation in March.

“It is true that delivery apps experienced unprecedented growth during the Covid-19 pandemic,” said a spokesperson from the e-commerce industry who wished to remain anonymous. “As demands over deliveries shrink due to factors such as costly delivery fees, leading delivery app Baemin should strive to reduce the consumer burden as it accounts for 70 percent of the total market. The discounts that the app is offering now don't really reach consumers.”

Delivery riders on the streets of Seoul. [NEWS1]

Baemin started a service in April where it cut down on delivery fees by grouping together orders from nearby stores and having the rider deliver them in one go.

It also started distributing discount coupons to users who order between 3 p.m. and 5 p.m. from May 22, which can be used simultaneously with other coupons.

Other e-commerce operators are rolling out subscription-based memberships to lock in their customers.

Yogiyo released a subscription service to pay 9,900 won a month for free deliveries. In restaurants marked “Yogi Pass,” deliveries are free of charge if the user orders more than 17,000 won.

Coupang Eats, which suffered the most dramatic on-year drop in monthly users in April, extended the benefits of parent organization Coupang's WOW membership program to its delivery app from May. WOW members receive discounts of up to 10 percent on their orders, including delivery fees.

WOW is a subscription-based program that offers a variety of benefits, such as free and fast shipping, discounts, access to exclusive promotions within the e-commerce platform and content from the Coupang Play streaming service for the price of 4,990 won a month.

Professor Jun Ho-kyeom of Seoul Venture University points out that apps such as Baemin and Yogiyo need to roll out more attractive services, rather than just offering discounts, to retain their consumers.

“For instance, in the case of Yogiyo, users can maximize the benefits of paying 9,900 won a month only when they use the app more than 1.6 times per week,” he said. “Also, in the case of one-person households, the minimum order of 17,000 won could be a financial burden. Apps need to offer more than discounts to keep their customers. As Coupang expands its membership to include delivery and streaming services, other apps need to form partnerships or collaborations with other companies to provide more benefits.”

BY LEE JAE-LIM [lee.jaelim@joongang.co.kr]