DSA webinar report: Why on-demand delivery will continue to flourish in Southeast Asia

With innovative approaches that offer a frictionless experience for consumers across both food and grocery, and massive headroom for growth in terms of category penetration, on-demand delivery in Southeast Asia is starting to live up to its potential

On-demand food delivery has experienced two years of hyper-charged growth, driven by the pandemic. In 2021, the total users of these services had already hit 28.9 million, according to a report from Frost & Sullivan. The report further stated that frequent users stood at 39%.

Grab’s managing director – commercial, Saad Ahmed said, “When the pandemic started, our focus was trying to get as many merchants online as possible. We knew it was very difficult for them to make a living, due to movement restrictions. Over the past two years or so, over a million small businesses joined our platform.”

He was speaking at ‘The future of food delivery in Southeast Asia’, a webinar conducted by DealStreetAsia in partnership with Grab. Besides Grab’s Ahmed, the panel included Unnat Varma, MD, Pizza Hut Asia Pacific; Sapan Sharma, VP – digital commerce and OOH channels, Unilever; and Chan Ming Lih, industry principal – mobility, Frost & Sullivan.

Through the course of the webinar, it was clear that the on-demand delivery sector was not going to rest on its laurels. Frost & Sullivan estimated that the GMV of food delivery will approach $50 billion by 2030, up from just $15 billion in 2021.

The headroom for expansion in Southeast Asia becomes obvious when one considers markets that are further along the curve. Ahmed said, “In Southeast Asia, online transactions formed only 10% to 12% of the overall food service industry in 2020. The same data for the US or China would be 20% to 25%.”

The panellists highlighted some of the key contributors in expanding the on-demand delivery business. For instance, vigorous onboarding of offline restaurants will help a larger number of MSMEs, including those that have shied away from digitalisation.

Apps and mobile driven delivery models will substantially increase access — not just to food but even consumer goods.

With the online grocery space piggybacking on the infrastructure of food delivery, consumer packaged goods (CPG) majors see it becoming a critical channel.

Finally, convenient payment options, and frictionless consumer experiences will result in a decline in discounting, and have a salubrious impact on the growth of the sector.

Please view the full session here.

Read on for some of the key takeaways from the webinar on the factors that will drive the growth of on-demand delivery.

The onboarding of ‘offline’ restaurants

Especially after the pandemic, digitalisation served the dual purpose of catering to a homebound audience of consumers, as well as offering a lifeline to offline businesses. While Grab today has the largest merchant-network in Southeast Asia, the company is still scratching the surface.

A key challenge in bringing vendors online has been the varying levels of digital maturity. To bring in the less digitally savvy merchants, Grab went offline setting up physical onboarding centres in key cities and towns. These venues offered a convenient location for merchants to get answers to their questions about going online.

For more digitally literate merchants, who had a greater degree of familiarity and comfort with tech, Grab enabled them to sign up from anywhere, following a step-by-step guide on the GrabMerchant app. The company even integrated with government registries to minimise manual inputs for merchants.

Another innovation to the business model saw the onboarding of vendors from traditional outlets like Singapore’s hawker centres for the very first time. These merchants had hitherto been left out by the food delivery industry. The thin margins that they operated on stopped many of them from going into food delivery, so as not to be burdened by additional costs. Grab created a feature that allowed consumers to purchase from multiple stalls in a single order, and pay one delivery fee. This model increased the average basket size for hawker orders, and allowed delivery commissions to be shared by multiple vendors. Ahmed said, “It defrays the cost of commission and makes hawker orders much more sustainable. Since it’s from the same area, it’s not difficult for the driver.”

Having multiple vendors on board also helped Grab offer a wider range of cuisines. Ahmed said, “The app helps you discover many merchants that you may not go to naturally.”

Access as a driver of growth

It’s not just traditional restaurants but the world’s leading café chains and QSR brands that have deepened their engagement with on-demand delivery. As a longstanding partner of Grab, Pizza Hut has gained not just from access to a captive audience on the platform, but by being able to derive deeper insights into consumer behaviour.

Consumer data has helped Pizza Hut create hybrid models. For instance, the QSR has discovered that apart from delivery, many of its patrons gravitate towards carryout – pre-ordering via phone or app and picking these orders in store. Varma said, “Typically, we would enter a new area by opening a flagship location where customers would experience the entire grandeur of the brand. That has dramatically changed — we are getting closer to customers with smaller stores that have limited or no table service.”

Similar impulses are driving even FMCG firms to partner with on-demand delivery. For Unilever, being ‘within arm’s reach of desire’ has been a strategic imperative, particularly for impulse categories like ice cream. Over a decade ago, this would have meant a ubiquitous presence in department stores and local groceries. Today, it translates into being readily available in-app. Unilever’s Sharma said, “Arm’s reach of desire has changed to a click on the phone, with everything delivered to homes. There cannot be a better context for ice cream than in food delivery apps. It’s ready to consume, just like the meals.”

Research conducted by Unilever revealed that while desserts were an integral part of the dine-in meal experience, they were included in only 8% of food delivery orders. Sharma said, “There’s significant headroom for us to play in building a habit of ordering dessert with a meal.”

The growing significance of grocery

Not just ice creams but the entire FMCG universe is gravitating towards on-demand delivery. Ahmed said, “The headroom for growth is even higher than food. I saw data that put online grocery as about 1% of the total grocery volume. We launched GrabMart at the beginning of the pandemic. The business has grown roughly about 4x between 2020 and 2021 in GMV.”

Grab is well placed to capitalise with the largest fleet across Southeast Asia. The ultimate objective is to increase the universe of choices for consumers. For FMCG firms, on-demand grocery breaks the limitations imposed by traditional trade. Unilever’s Sharma said, “If you feel the urge to treat yourself to an ice cream at 9 pm but don’t want to visit the nearest store, you can have it delivered in 10 minutes. There are occasion-based opportunities where categories like ours can play.”

Aligning with Grab has helped Unilever to experiment. Sharma said, “On these apps, you can test at a rapid scale. Companies like us invest significant budgets on media. Imagine if we can divert it to apps and engage with consumers, where they already are.” As a next step, Unilever expects the burgeoning instant or 10-minute delivery space to catch on. Sharma said, “While there are questions about its uptake in Southeast Asia, where there are 7-11s and mom and pop stores, there is a segment for whom the definition of convenience is very different. They will not even walk 50 to 100 metres to make a purchase! We’ve seen a significant jump in consumption of these 10-minute delivery apps and ordering in markets like India or even Thailand, the Philippines, Singapore, and Malaysia.”

The financial ecosystem driving growth

On-demand delivery is growing on the back of new business models in financial services. Small businesses who faced difficulties getting funding from banks now have a convenient avenue for finance through Grab, which offers working capital to merchants on its platform. While an estimation of the credit worthiness of a merchant was hard to come by previously, data is a facilitator. Grab can cross index information across its payments and food services to form an accurate picture of a business. Ahmed said, “It’s about expanding services to merchants who probably find it really hard to navigate the traditional financial system.”

Another huge shift is the embrace of digital finance by consumers. As they get more confident about online purchases, the appeal of cash on delivery is expected to diminish. The low penetration of banking and credit cards has been surmounted by the ubiquity of mobile phones, digital wallets, and the creation of a new payment ecosystem.

On-demand channels like Grab have their own payment wallets. The acceptance of a wide range of e-wallets and digital finance options gives consumers an unprecedented level of freedom. Varma said, “Unless your platform is integrated with these wallets, you will never get a share of that particular customers’ pie. Any technology where customers don’t have to depend on a physical card or device, will be the way to go.”

The rise of frictionless customer experiences and the decline of discounts

A frictionless customer experience can impact one of the biggest stumbling blocks of profitability in F&B — massive discounts and price-offs. Pizza Hut’s Varma said, “If we deliver a frictionless experience, they will come back more frequently. We don’t need high ticket items or areas outside our core.”

Creating such experiences is at the core of the recently announced regional partnership between Starbucks and Grab. Starbucks first came aboard the GrabFood platform in 2019, and recently announced a partnership set to be completed by 2024, encompassing Indonesia, Malaysia, the Philippines, Thailand, Singapore, and Vietnam. Customers can use the Grab app to place takeaway orders at Starbucks, and be notified as soon as it is ready to be picked up. An integrated loyalty programme means that a customer can earn both GrabRewards points as well as Starbucks Stars on making a purchase via the Grab app. The partnership thus eliminates points of friction, besides incentivising customers across online, takeaway, and offline dining experiences.

In pursuit of a frictionless experience, restaurants have begun to offer tracking services. When faced with similar options, being able to track delivery becomes an important deciding factor.

Frost & Sullivan’s Chan Ming Lih acknowledged that discount promotions were still important in Southeast Asia, particularly in areas where market penetration was low. However, she saw this changing and added, “These marketing activities are transforming into subscription services and strategic positioning. They help build recurring revenue streams and user engagement, and to keep consumers informed about new launches.”

Speaking about the future of food delivery in Southeast Asia and if she anticipated consolidation, Chan Ming Lih said, “Grab has nearly 50% share of the on-demand food delivery market in Southeast Asia. There will be high market concentration with Grab continuing to dominate the region with the largest share. We forecast that the market GMV of Southeast Asia will get close to $20 billion in 2022, driven by urbanisation, improvement in the superapp platforms, the increased choice of foods, groceries and merchants, as well as expansions of geographic density.”

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For more information on Grab Food and its suite of offerings, please visit the official site