Survival of the richest: Coupang corners Baemin

South Korea's e-commerce giant Coupang Corp. is ready to take over the food delivery market via aggressive investments -- a move that is pressuring the Germany-based Delivery Hero SE to tighten its grip on its leading position.

The two firms are expected to engage in a "money war" as they vie to dominate the food delivery market in Korea.

Coupang operates Coupang Eats, which became the country's third-ranked food delivery app last year even as a latecomer to the market. Launched in 2019, the platform had a weak market presence until it started offering "single order delivery" services, which became a huge success.

Last year, Delivery Hero acquired Woowa Brothers Corp., the operator of the leading food delivery app, Baedal Minjok (Baemin). The deal received conditional approval from the Korea Fair Trade Commission (KFTC) due to concerns over a market monopoly, given that Delivery Hero would operate two food delivery apps that hold over a combined 80% market share.

Delivery Hero was required to offload a 100% stake in its Korean arm, which operates the No. 2 food delivery app, Yogiyo. Despite initial pushback, Delivery Hero accepted the antitrust regulator's decision.

However, Coupang has been beefing up its food delivery business backed by its recent successful US listing, making Baemin apprehensive as it faces the risk of having to forfeit its long-held market dominance. In fact, such concerns have driven Baemin to roll out "Baemin 1," a single order delivery service similar to that of Coupang Eats.

HOW 'SINGLE ORDER DELIVERY' CHANGED THE LANDSCAPE

What makes single order delivery special is that riders will pick up just one order per trip, reducing delivery time significantly and keeping the food warm. Normally, riders would take three to five orders on a single delivery trip, meaning extended delivery time.

The single order delivery service has been effective in attracting consumers, but it requires money -- something that Coupang Eats has.

"What worries Baemin is Coupang's wealth, which has grown since its recent US listing. There's a sense of crisis that Coupang may endure losses to take over the market, just as it did in the e-commerce market with its signature rocket delivery service," said a delivery app industry official.

Single order delivery fees, spread between the food outlet and the consumer, normally average around 5,000 won, However, in extreme circumstances such as heavy rain or snow during peak hours, the delivery fee can run up to 26,000 won per order. 

Coupang attracted drivers by offering to pay all of the delivery fees exceeding 5,000 won. Its efforts paid off as Coupang Eats' market share grew quickly thanks to avoiding penny-pinching and offering competitive pay to the riders.

According to data provider Nielsen Korean Click, Coupang Eats outperformed Baedaltong for the first time in February 2020, becoming the country's third-ranked delivery app. Meanwhile, Baedaltong will be terminating its service next month, 11 years after its launch.

DELIVERY HERO FIGHTS BACK, BEEFS UP EFFORTS TO SECURE RIDERS

Next month, Baemin is set to release its own single order delivery service, Baemin 1, fighting to hold onto its leading position. The company has even offered to cover up to 20,000 won in delivery fees per order.
 
Following the announcement of Baemin 1, Coupang Eats shared plans to temporarily adopt a system whereby high-performing drivers can claim up to 5,900 won to 6,500 won per delivery, more than double the regular delivery fee of 2,500 won. 

The key point will be securing drivers. Delivery apps will need to pay more to drivers to entice them to take orders from their platforms instead of their competitors'.


Write to Sul-li Jun at sljun@hankyung.com
Danbee Lee edited this article.