Delivery apps struggle as users say no to high fees

Delivery apps struggle as users say no to high fees

Food delivery apps, which experienced tremendous growth during the Covid-19 pandemic, are now facing a decline in users as people become reluctant to bear the burden of escalating delivery fees.

According to the latest data from Statistics Korea, online food delivery sales in April witnessed a 1.4 percent year-on-year decrease, amounting to 2.1 trillion won ($1.6 billion). This marks the tenth consecutive month of on-year declines. In March, the figure plummeted by a staggering 12.9 percent to 2.1 trillion won, representing the highest decline recorded since Statistics Korea began compiling data on this category in 2017.

The diminished demand for delivery services can be attributed to Korea transitioning into the endemic phase of the Covid-19 situation, liberating people from the confines of their homes. Furthermore, the surge in food prices and delivery fees has had an adverse impact on demand. Mobile data analysis company Mobile Index reveals that in April, Baedal Minjok (Baemin) experienced a 3.1 percent year-on-year decrease in monthly active users (MAU), totaling 19.55 million. Yogiyo witnessed a sharp decline of 16 percent, with its MAU standing at 6.68 million, while Coupang Eats’s figures plunged by 40 percent, reaching 3.03 million.

Kim Jeh-hoo, a 28-year-old living alone, shares his perspective: “I no longer rely heavily on delivery apps since the social distancing measures were lifted. Now that I am free to venture outside, I prefer dining out with friends and acquaintances. Even when I do place an order through an app, I prefer picking up the food myself at the restaurant. The rising delivery fees have become exorbitant for me.”

A survey conducted by market tracker Open Survey, encompassing 1,687 delivery app users, reveals that nearly one-third of respondents reported reduced usage of these apps compared to the previous year. Among the 485 respondents who expressed diminished usage, an overwhelming 83.9 percent attributed it to the high cost of delivery fees.

Delivery fees, ranging from a basic fee of 2,000 won to as high as 10,000 won, often account for a substantial portion, and sometimes even more than half, of the total cost of the ordered food. Additional charges may be imposed based on distance or weather conditions.

According to a survey by the Korea Agro-Fisheries & Food Trade Corporation in March, 68.6 percent of 1,267 respondents considered 2,000 won to be an appropriate delivery fee, while 23 percent deemed a fee between 2,500 won and 3,000 won acceptable.

A spokesperson from the e-commerce industry, requesting anonymity, acknowledges the unprecedented growth experienced by delivery apps during the pandemic: “As delivery demands shrink due to factors such as exorbitant delivery fees, it is imperative for the leading delivery app Baemin, accounting for 70 percent of the total market, to alleviate the financial burden on consumers. The current discounts offered by the app do not sufficiently address consumers’ concerns.”

Baemin has introduced a service in April aimed at reducing delivery fees by consolidating orders from nearby stores and delivering them in one go.

Additionally, the company has started distributing discount coupons to users who place orders between 3 p.m. and 5 p.m. starting from May 22. These coupons can be used in conjunction with other offers.

Other e-commerce operators are adopting subscription-based membership models to retain their customer base. Yogiyo has launched a subscription service where users can pay 9,900 won per month to enjoy free deliveries. In restaurants marked as “Yogi Pass,” deliveries are free of charge for orders exceeding 17,000 won.

Coupang Eats, which experienced the most substantial year-on-year drop in monthly users in April, has extended the benefits of its parent organization Coupang’s WOW membership program to its delivery app starting from May. WOW members can avail discounts of up to 10 percent on their orders, including delivery fees.

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

Professor Jun Ho-kyeom from Seoul Venture University emphasizes that apps like Baemin and Yogiyo should introduce more enticing services beyond mere discounts to retain their customer base. He suggests, “For instance, in the case of Yogiyo, users can fully maximize the benefits of paying 9,900 won per month by utilizing the app more than 1.6 times per week. Moreover, the minimum order requirement of 17,000 won can pose a financial burden for single-person households. Therefore, apps should offer additional perks beyond discounts. As Coupang expands its membership to include delivery and streaming services, other apps should consider forming partnerships or collaborations with other companies to provide enhanced benefits.”

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