As restaurants revolt over commission fees, delivery apps blame each other

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As restaurants revolt over commission fees, delivery apps blame each other

Published: 03 Oct. 2024, 20:03

Delivery drivers ride on a street in Seoul on May 24, 2021. [NEWS1]

Conflict continues to brew between restaurant owners and delivery platforms over high commission rates, with no clear-cut solution in sight.

Major delivery services, including Baedal Minjok and Coupang Eats, continue to blame each other for an overall rise in rates without budging on their own prices, while measures meant to alleviate delivery fees, such as the dual pricing structures some large franchises have implemented, face consumer backlash.

Park Geum-seon, 51, has been running a cafe in Seo District, Incheon, for six years. She says she’s no longer happy to receive orders for delivery.

“Baedal Minjok [Baemin Club] and Coupang Eats both raised their rates to 9.8 percent,” Park said.

“In the past, around 21 percent of each sale would be commission fees [including delivery fees], but now, it’s around 30 percent. There is almost no margin after the costs of ingredients, labor and monthly rent are paid off.”

A committee made up of representatives from delivery platform companies and the restaurant industry formed in July as part of a government initiative to resolve the industry’s conflict regarding commission rates. But even at the fifth meeting, held Sept. 24, the group did not reach a satisfactory proposal.

One participant in the meetings said that “a meaningful discussion could not take place because delivery app companies were stubbornly against reducing commission fees, which is a key factor in preparing a mutually beneficial plan.”

Burger chain Lotteria's branch in Seoul on Sept. 24 [YONHAP]

Frustrated shop owners eventually proposed a dual pricing system, wherein they would charge more for items they deliver than they do for the same items in-store and put the extra money toward delivery platforms' delivery fees.

Large franchises implemented the system. A McDonald’s Big Mac, for instance, costs 7,200 won ($5.40) when bought in a restaurant but 8,500 won on delivery apps. Burger chain Lotteria also hiked the price of its delivered combo meals by 1,300 won and of separate items by around 700 to 800 won.

While shops face the brunt of criticism over their dual pricing systems, Korea’s two largest delivery platforms — Baedal Minjok, also known as Baemin, and Coupang Eats — blame each other for setting the market standard for commission fees.

Coupang Eats first introduced free delivery for its paid WOW members in March, and Baemin did the same for subscribers to its Baemin Club May. Baemin increased its commission fee from 6.8 percent to 9.8 percent, the same as Coupang's, in August, sparking speculation that it was levying the costs of free delivery onto its listed sellers.

Baedal Minjok, also known as Baemin, leads in Korea's food delivery app market share.

Coupang Eats said through its newsroom on Sept. 24 that it had “frozen its commission fees at 9.8 percent and does not pass on the costs of free delivery to sellers or customers.”

“A different company, on the other hand, has been called out for making restaurant owners and consumers shoulder the costs of free delivery,” Coupang said, taking aim at Baemin, which increased its commission fee while rolling out its unlimited delivery membership subscription, Baemin Club.

Market leader Baemin said that its in-house Baemin Delivery service paid the delivery expenses that was set at the same rate as its rival company. Baemin allows shop owners to work either with Baemin Delivery’s contracted drivers or a third-party delivery agency.

In Seoul, “Shop owners pay a 9.8 percent commission and 2,900 won in delivery expenses for Baemin Delivery, both of which are the same as our rival company,” Baemin said.

“Our commission fee for shops that use their own delivery services, which Coupang Eats treats as the same as Baemin Delivery, is the lowest rate of 6.8 percent.”

In response to accusations made by store owners that Baemin forced stores to set same food prices and discount rates on all delivery platforms, the company said that “a rival company had started it first; we had no choice but to respond as there were no sanctions taken against them” in a statement on Sept. 29.

Restaurant owners listed on delivery app Baedal Minjok protest the platform's commission hike in front of operator Woowa Brothers' offices in Songpa District, southern Seoul, on Aug. 7, 2024. [NEWS1]

Shop owners have responded with disdain to the platforms’ blame game, which serves as a distraction from the fact that both platforms' commission fees are unsustainably high, a matter neither has directly addressed.

“What’s important is that these platforms are forcing listed merchants to pay 9.8 percent on each sale and 2,900 won in delivery fees while holding customers hostage,” said Kim Jong-baek, head of Korea Franchise Association’s public relations for public policy.

“It doesn’t matter who should take the blame. For shop owners, the two are the same,” Kim said.

“Delivery platforms are distributing free coupons and providing support for delivery fees now to raise their market share, but once a firm dominates the market it’ll definitely gradually raise the fees,” said Ko Jang-su, chairman of the Cafe Owner Cooperative Organization.

All eyes are now on whether the government-led committee will put out an arbitration proposal that lowers commission fees. As public opinion moves against the platforms, many say the companies will have to back down.

“In the end, a compromise in which the delivery app firms lower commission fees will be made,” a committee member who had participated in the meetings said, adding that “the government’s resolve to protect self-employed workers is strong.”

The government said it would open two to three more meetings and come up with a mutually beneficial plan within October.

A source at the Fair Trade Commission, however, said that “discussions on commission fees are only now on the table. Both sides are set to present detailed plans at the sixth meeting on Oct. 8.”

BY YI WOO-LIM [kim.juyeon2@joongang.co.kr]