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Food delivery business becomes ‘more spicy’
It’s on: Food couriers prepare to deliver orders at Sarinah shopping center in Jakarta on Feb
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t’s on: Food couriers prepare to deliver orders at Sarinah shopping center in Jakarta on Feb. 14, 2011. Competition among food delivery businesses is tightening with customers able to order through internet applications.(JP/P.J. Leo)
Publicly listed PT Sarimelati Kencana became the first-ever corporation to focus on food delivery in Indonesia when it opened its flagship Pizza Hut Delivery (PHD) outlet in North Jakarta in 2007.
The small, red-and-black outlet is designed for fast delivery. It uses most of its space for kitchen instead of a seating area, has half the menu of a restaurant and a fleet of motorcycles parked outside.
PHD outlets are an example of the now trending online delivery services called “delivery-only kitchens”, which are designated spaces where popular eateries can open branches closer to neighborhoods with high demand and, thus, reduce delivery times especially in heavy-traffic cities.
Sarimelati Kencana itself described PHD outlets as a “defensive strategy to erect barriers of entry for competitors”, which initially proved effective, as PHD held a 64.6 percent market share of pizza delivery in 2016.
The PHD barrier was breached when ride-hailing service Go-Jek launched its food delivery service Go-Food in 2015, followed by rival Grab with GrabFood in 2016.
These online food delivery services tighten competition in the food service industry by giving small and medium eateries equal access to a citywide market.
“Online aggregators also have the potential to control the delivery prices of eateries in the near future,” says Sarimelati Kencana in its prospectus. “Unless we properly manage these issues, they may result in losses related to our business, finances, revenue and future prospects.”
Sarimelati Kencana director Jeo Sasanto said his company would focus on growth by opening new outlets, particularly PHD outlets, in smaller cities and in eastern Indonesia.
PHD opened 60 new outlets last year alone, 48 of which were PHD outlets, indicating the company’s commitment to delivery-only kitchens.
“Basically, we enter a new city in Indonesia every year. There are many potential new cities, provinces and districts, so we still have many opportunities,” said Jeo, as reported by kontan.co.id.
The food delivery business is poised to grow as the urban population, characterized by above-average income and consumption, is projected to grow from 55 percent of the total population in 2016 to 68 percent by 2025, according to the World Bank.
To capture this market, GrabFood and Go-Food announced commitments to expand this year their “Kitchen by GrabFood” and “Go-Food Festival” programs.
The arch rivals have joined a trend among online food delivery services worldwide that only caught-on when British service Deliveroo announced in early 2017 that it would open 30 kitchens in the United Kingdom even though rivals like GrubHub and UberEats have been experimenting with a similar concept.
GrabFood found its only Kitchen by GrabFood located in West Jakarta successfully reduced delivery times from a nationwide average of 28 minutes to 22.4 minutes in the neighborhood.
“We will have several kitchens [in Jakarta] this year. I cannot reveal the number, but we will go very aggressive on Kitchen, because we have seen good traction,” said GrabFood regional head Tomaso Rodriguez.
Grab inaugurated its flagship kitchen late last year to spearhead its ambition to become this year’s leading online food delivery service in Southeast Asia, in a market valued at an estimated US$3 billion.
The first kitchen is a green-and-black indoor food court hosting six merchants selling, among other things, satay from Jakarta, gudeg (Javanese jackfruit stew) from Yogyakarta and spicy fried chicken from South Sulawesi.
Rodriguez said Grab’s kitchen helped merchants expand by absorbing their capital expenditure in exchange for a commission on orders.
“Looking at the statistics, 70 to 90 percent of restaurants in big cities fail within the first year because rent and capital expenditure kills them. So imagine the benefit of removing that risk from the value proposition,” he told The Jakarta Post.
Meanwhile, Go-Jek launched in late 2017 its flagship kitchen-like Go-Food Festival, which manifests itself as a colorful courtyard dotted with artisanal eateries in at least 20 white tents, each acting as a merchant’s makeshift kitchen, and seating areas.
The festivals are similar to kitchens, because they bring top-selling merchants closer to their customers — by eliminating branch costs in exchange for a commission — but differ because of their stronger emphasis on dining-in, even though they can also handle delivery.
The festivals compel visitors to sign up for the company’s e-wallet, Go-Pay, by restricting dine-in purchases exclusively to the e-wallet.
The Post previously wrote that the e-wallet was Go-Jek’s spearhead to superapp status, but Catherine Hindra Sutjahyo, Go-Jek chief of commercial expansion, said the Go-Pay captivity also trained merchants to exploit digital cash management technology.
“Cash management is one of the most common concerns for SMEs when opening franchises and hiring [non-family] employees. This is where Go-Pay comes in. By making them go cashless, cash management becomes very simple,” she said.
In comparison to Grab’s kitchen, the Go-Food Festivals have greater reach with 30 festivals hosting 800 merchants in 14 cities across the country but offer shorter term commitments with only one-year contracts, subject to renewal.
